September 23, 2026, was a very, very rough day for Treasurys. So rough, in fact, I suspect mechanical flows and forced selling were in play. (I know, I know: “Do you think so?“)
The march higher for US yields began promptly at 9:45 AM ET, which is to say the initial trigger was the release of preliminary September PMI data from S&P Global. All three of the headline readouts (i.e., manufacturing, services and the composite gauge) were scorching hot.
Around the same time, the Fed released the prepared text of a speech from Michael Barr, who spoke at an event in Chicago. In his remarks, Barr said additional rate hikes are likely necessary to curb inflation.
By 10:30 in New York, 10-year yields were flirting with 5.07%. Had it stopped there, this wouldn’t really be a story. But it didn’t. Didn’t stop there, I mean.
Instead, the situation escalated, with benchmark US yields peaking near 5.14%, 10bps above the September 15 intraday high. Wednesday’s inflection was sharp enough to stick out as a vertical ascent on a chart (orange diamond marker, below).
The annotations on the figure will elicit some chuckles. Suffice to say Scott Bessent should’ve known better.
Since Bessent intervened in August to cap borrowing costs (there was no evidence of market dislocation that would’ve justified upsizing buybacks), 10-year yields are 50bps higher. Let that be a lesson: Don’t try the bond market unless you’re the central bank. Even if you are the central bank, success in a battle with bond vigilantes isn’t guaranteed. Ask the RBA about that.
(As a quick aside, while re-reading my coverage of Australia’s YCC abandonment this afternoon, it occurred to me that my own views on central bank omnipotence have shifted over the past four years, and by quite a bit more than I realized.)
Note that the selloff at the US front-end pushed twos more than 100bps wide to EFFR. Again.
As the figure shows, Wednesday’s fireworks effectively erased all the progress the Fed made this month in bringing policy rates closer to where the front-end thinks they “should”/will be.
STIRS put the chances of a hike next month at roughly 70%, up from a coin flip on Tuesday. That’s a serious escalation. If Kevin Warsh isn’t sweating right now, he should be. Back-to-back hikes before the mid-terms is the sort of thing that gets Bill Pulte interested in your mortgage docs. I’d say I’m joking, but… well, you know what I mean.
Insult to injury on Wednesday: Bessent’s five-year sale tailed 3bps despite a dramatic, belly-led cheapening into the auction.
As the figure shows, dealers were left with almost 16% of the sale, the most in years. The indirect award, 54.3%, was more than 10ppt below average.
It’s a small miracle stocks held up as well as they did. Wednesday was one of the worst all around sessions I can remember for Treasurys, and the correlation between rates and equities is (unfortunately) positive these days.
Bottom line: This was a mini-meltdown in rates, and while I doubt Trump’s attuned enough to notice on his own, if it comes across his radar, Bessent will have some ‘splainin’ to do.
“Do you think so?” – the greatest sarcastic retort in cinema history.
Scott better hope the ‘human printer’ doesn’t get to Annihilate Man with this or he’ll be consigned to the decoy plane along with the chief warlord.
That was good. Really good. Probably true….
As of 1:30 PM Pacific Coast time, the 5-year yield is at 4.899% (let’s just call it 4.9%). That is just a hair’s width from 5%, and just a week or so after the 10-year breached that same number. Don’t look now, but the 10-year minus 2-year spread is now heading towards inversion again. That early recession indicator misled us last time, but that was during the financial distortions of the COVID response. This time it seems more organic. Over-all, the speed of the changes in rates is increasing.
Fives peaked at 5.03%. Close 97-11 1/4, 4.987%.
Today, a banking consortium headed by Goldman Sachs (consisting of Affiliates of Blue Owl Capital, PowerHouse Data Centers LLC, and Cedarwood Investment Group LP) managed a $1.1B issuance of high-yield (junk) bonds to fund a “CoreWeave-tied” (meaning leased)” data center in Richmond Virginia. The yield on the 5-year bonds was 9.25%. I realize it’s junk, but compared to the 5-year Treasury that’s quite a spread (over 4.2%).
2008 revisited?
Smirks: https://heisenbergreport.com/wp-content/uploads/2026/09/Meltdown.png
I think Scott has forgotten the history of the man he works for when he says, ‘I am the house’. Donnie has a track record of bankrupting casinos.
Upon reflection could the US electorate have chosen a more spectacularly unqualified person to manage the economy. His bio screams fail, fail, fail.
3Q earnings and revisions have some heavy, heavy lifting to do, if Trump doesn’t want midterm votes to be cast into a market downturn. He won’t be able to wave another fake MOU; Iran will be twisting the knife.
As for the day after, I’m not confident a D sweep will be equity-positive. I’m not sure if a blatantly fabricated R win will be equity-negative.
“Strange days have found us
Strange days have tracked us down
They’re going to destroy our casual joys
We shall go on playing or find a new town, yeah!”
I think a ban on diesel and probably also gasoline exports, if not all distillate exports, till the end of 2026, should temporarily suppress inflationary fears and bond volatility till the midterms. And perhaps that additional time may hopefully get us closer to some resolution of this unfortunate, ridiculous, and unnecessary debacle in Persian Gulf.