1Auction demand has put a soft ceiling on the 10-year yield near 5.2%
The 10-year Treasury yield closed at 5.22% on 8 October, down from 5.28% the day before, according to FRED. Days earlier it had touched a 24-year high. Joseph Wang, a former New York Fed trader, said on his Markets Weekly that last week's 10-year auction explains the pause. The auction cleared at a lower yield than the pre-auction "when-issued" market implied. Bid-to-cover, which measures demand against supply, was strong. Primary dealers, who must bid and absorb whatever investors leave, took down very little. Wang read that as real investor demand at these levels. "That kind of puts a soft ceiling on yields for the moment," he said.
He added a second sign of value. Thirty-year inflation-protected Treasuries yield about 3.3% above inflation, a multi-decade high. Break-even inflation is around 2.2%, he said, so any CPI above that beats an ordinary Treasury. He dismissed the argument that the official CPI understates inflation. Measurement choices can move it by "a few tenths", he said, not by enough to matter.
Not every source agrees the selling is over. A Reuters column on Friday listed "four signs it is about to get uglier in the bond market". David Zervos, newly advising Treasury Secretary Scott Bessent, said this week yields are "really, really high" but can come down soon, CNBC reported. The gap between 10-year and 2-year yields narrowed from 0.51 to 0.44 percentage points between 7 and 9 October on FRED. That means long yields fell faster than short ones, which fits Wang's read.
So what: one strong auction shows buyers at 5.2%, not that yields have peaked. The next auctions and Wednesday's inflation print decide whether the ceiling holds. A 10-year above 5.3% again would mean the demand Wang saw was a one-off.
2The Fed's next move is priced as a hike, and Wednesday's inflation print is the next test
Fed Governor Christopher Waller said this week there will be no October hike, but probably one in December and maybe another after, Wang reported. A month ago Waller was asking colleagues to "give this inflation a chance". Wang said Waller cited three reasons for the change. The AI build-out is stronger than expected. Oil keeps rising. And tariffs look persistent, with a widening trade fight with Canada. Waller's framing, as Wang put it, is that last year's 75 basis points of "insurance" cuts were not needed. Wang's base case is two more hikes, about one a quarter. The effective federal funds rate averaged 3.75% in September, up from 3.63% in August, according to FRED.
Prediction markets agree. Kalshi prices a December 25bp hike at 74¢, up from 73¢, on open interest of about 126,000 contracts. October stays a hold at 84¢, with a hike at 16¢; open interest there exceeds 1 million contracts. Polymarket has October at 83.5% hold on about $27,000 of 24-hour volume. It prices no Fed cut at all in 2026 at 95.5%.
September CPI, due before the open on Wednesday 14 October, is the next test. Kalshi prices headline CPI rising more than 0.5% in the month at 66¢, up from 58¢, on about 12,000 contracts traded. It prices core CPI, which strips out food and energy, above 0.2% at only 38¢. That split says traders expect energy to drive the headline while underlying inflation stays near 0.2%. On the annual rate, Kalshi has above 3.5% at 87¢ and above 3.6% at 47¢, up from 44¢.
So what: a hot headline driven by energy fits Waller's oil argument and supports December. A soft core figure would give the Fed room to keep the hikes slow. Both can happen on the same morning, which is why the core number matters more than the headline.
3Diesel, not crude, is the energy bottleneck, and the Gulf keeps the risk two-sided
Wang said oil has stabilised around $100 a barrel, but that crude is the wrong price to watch. "We don't consume crude oil. We consume refined products," he said. He put diesel at about $200 a barrel. Too much refining capacity sits in the Middle East and cannot export, and Ukraine keeps hitting Russian refineries. He doubted the President's diesel deal with Russia would change much. A Reuters report on Friday said US diesel prices remain high despite the administration's moves to add supply. WTI crude closed Friday at $91.85, Yahoo Finance reported, after rising as more Gulf of Mexico production shut ahead of a hurricane, Reuters said.
The escalation news did not stop for the weekend. Houthi fighters struck a Saudi airport on Saturday, killing 12 people in the worst attack on the kingdom in a decade, Reuters reported. Early Sunday, the US military said it disabled a cargo ship trying to run its blockade of Iran. Polymarket prices Hormuz shipping returning to normal by 31 December at 16.5%, down a point, on about $26,000 of volume. It gives WTI touching $100 in October a 37.5% chance, up 1.5 points.
Wang still leans toward a diplomatic deal before the 3 November midterms. His reason is mutual deterrence: if Iran is bombed, it can destroy oil infrastructure in Saudi Arabia, Qatar and the UAE. The President said on Friday the US would not attack Iran before the midterms. Polymarket prices the US–Iran ceasefire holding through 31 October at 77.5%, up 2 points, on about $269,000 of volume. Through 30 November it falls to 41.5%. The market and Wang agree on the next three weeks. They split on what happens after the vote, and that is unresolved.
So what: diesel sets what consumers and truckers pay, and diesel needs refining capacity that only a Gulf settlement frees. Until then, oil keeps feeding the inflation numbers that drive the Fed. Wang said a resolution would bring "a huge surge in the stock market".
4The AI trade still sells first on revenue doubt, while the financing keeps getting bigger
A Financial Times report suggesting OpenAI's revenue is lower than expected hit AI stocks this week. Wang said the first reaction was to sell "everything AI related", before a recovery as investors questioned how the revenue was counted. He called the reaction a sign of nervousness. In his view the sector is a bubble that may still end in a blow-off top. He cited estimates that AI revenue must grow about tenfold in a few years to justify the capital spending. Per-token prices are falling even as usage rises. He said Anthropic's revenue had stopped growing while it kept losing money. He also said the US lacks the electricity to run every data centre that has been promised.
The financing grew anyway. Broadcom is arranging more than $50 billion to fund custom chips for OpenAI, with Apollo and Blackstone involved, Proactive reported via Yahoo Finance. Oracle fell on more debt raised to buy AI chips. CNBC reported large bearish trades in Micron and Nvidia on Friday as short positions against chipmakers grew. Separately, Micron's union in Taiwan authorised a strike over a bonus dispute, a company-specific risk rather than a sector one.
So what: the index recovered within days, but the market is pricing AI on whether its revenue can carry the debt. Wang's bubble view and the new $50 billion financing describe the same thing from opposite ends. The next data point on lab revenue will move both.
Tuesday's bank results and Wednesday's CPI test the hike case
Monday is Columbus Day: US stock markets open, but the bond market is closed. Bank earnings arrive on Tuesday 13 October, before the open, from JPMorgan, Goldman Sachs, Citigroup and Wells Fargo, with UnitedHealth and Johnson & Johnson. Bank of America, Morgan Stanley and BlackRock follow on Wednesday, the same morning as September CPI. ASML reports on Wednesday and TSMC on Thursday, the first read this season on the chip demand behind claim 4.
A Prof G Markets episode added one context point. Host Ed Elson cited figures showing SEC enforcement actions down more than 90% this year, while investors filed 118 securities-fraud suits in the first half, on pace for the most since 2020. These are his figures and have not been checked.
