Fixed Income Update
Bond markets extended their selloff into the end of the third quarter before staging a modest rally to open the fourth quarter, driven largely by overseas developments.
Treasuries ended a difficult September and third quarter on Wednesday, with the 10-year yield rising above 5.3% and the 30-year yield reaching 5.65%. PCE inflation data released that day were broadly in line with expectations and provided a rare encouraging signal. In August, headline PCE rose 0.3% and core PCE increased 0.2%, bringing their respective year-over-year rates to 3.4% and 3.0%. The report was best described as not terrible, but not good, an outcome unlikely to satisfy the Federal Reserve. September CPI is due in less than two weeks and, given the month’s energy-price backdrop, could prove less favorable than the PCE report.
Treasury yields moved notably lower on Thursday as investors sought safe-haven assets. Concerns about a potential sovereign debt crisis in France intensified after the government proposed an austerity budget, triggering widespread student-led riots, urban violence, and a national public-sector strike. Eroding confidence in France’s fiscal outlook has widened spreads on French OATs (Obligations Assimilables du Trésor). Although OATs still yield less than U.S. Treasuries, the gap is narrowing quickly: the 10-year OAT yield has risen more than 50 basis points over the past two weeks and nearly 150 basis points since June. The French bond market suggests the government has little choice but to pursue austerity, while the public response highlights the political challenge of doing so. Against this backdrop, Treasury yields fell approximately 10 basis points on Thursday.
Friday’s September employment report reignited concerns about the U.S. labor market. Payrolls increased by only 29,000, while revisions to the prior two months reduced previously reported job gains by a combined 60,000. The unemployment rate edged up one-tenth of a percentage point to 4.2%. Following the release, Treasury yields declined by approximately 5 additional basis points, and the market-implied probability of an October rate hike fell from 70% at the start of the week to 20% as of this writing.
Credit spreads also came into focus after newly issued Paramount Skydance debt, used to finance its acquisition of Warner Bros., fell approximately 5% on its second day of trading. High-yield bond spreads have widened from 265 basis points a month ago to 318 basis points today. They remain well below the 2025 peak of 450 basis points reached during the tariff rollout and the roughly 1,100-basis-point level recorded during the pandemic. Even so, with borrowing costs higher this year, additional widening bears close watching, particularly for signs of spillover into higher-quality segments of the bond market.
As of October 02, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
3.09% |
2.98% |
.11% |
2.83% |
.26% |
|
Taxable MMF |
3.88% |
3.86% |
.02% |
4.12% |
-.24% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.81% |
4.85% |
-.05% |
3.54% |
1.27% |
|
5-Year Treasury |
5.02% |
4.99% |
.04% |
3.67% |
1.35% |
|
10-Year Treasury |
5.24% |
5.16% |
.08% |
4.08% |
1.16% |
|
30-Year Treasury |
5.60% |
5.49% |
.11% |
4.69% |
.91% |
|
5-Year Exp. Inflation |
2.36% |
2.36% |
.01% |
2.40% |
-.04% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
3.61% |
3.65% |
-.05% |
2.38% |
1.23% |
|
5-Year Municipal** |
3.77% |
3.87% |
-.10% |
2.41% |
1.37% |
|
10-Year Municipal** |
4.18% |
4.27% |
-.09% |
3.04% |
1.14% |
|
30-Year Municipal** |
5.26% |
5.20% |
.06% |
4.47% |
.78% |
|
|
|
|
|
|
|
|
Fed Funds |
4.00% |
4.00% |
.00% |
4.25% |
-.25% |
|
Prime Rate |
7.00% |
7.00% |
.00% |
7.25% |
-.25% |
|
Dollar*** |
$101.76 |
$100.97 |
$0.79 |
$97.85 |
$3.91 |
|
CRB |
$412.02 |
$418.54 |
-$6.52 |
$298.33 |
$113.69 |
|
Gold |
$4,174.30 |
$4,287.80 |
-$113.50 |
$3,839.70 |
$334.60 |
|
Crude Oil |
$89.56 |
$92.41 |
-$2.85 |
$60.48 |
$29.08 |
|
Unleaded Gasoline**** |
$3.28 |
$3.19 |
$0.09 |
$1.76 |
$1.51 |
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
US equities struggled for much of the week, with major indices negative through Thursday’s close as higher bond yields weighed on investor sentiment. A weaker September employment reading helped to lift equities Friday morning as investors viewed softer labor-market data as supportive of the Federal Reserve (Fed) potentially holding rates steady at its upcoming October meeting. As of Friday morning, the Nasdaq Composite was the only major index positioned to finish the week in positive territory.
Elevated bond yields remained a headwind for US equities. The US 10-year Treasury yield briefly topped 5.3% this week as high oil prices, a firmer US growth outlook, heavy corporate-debt issuance, and a hawkish Fed continued to push yields higher. Eight of the eleven S&P 500 sectors fell more than 1% on the week through Thursday, reflecting concerns about borrowing costs and potential demand destruction. Information Technology and Energy were notable exceptions, both trading higher through Thursday. The Information Technology sector was buoyed this week by several high-profile companies reaching new all-time highs. Nvidia, Advanced Micro Devices, Palo Alto Networks, and CrowdStrike all traded to all-time highs with agentic AI momentum and growing enterprise spending on AI security some of the drivers.
Headlines surrounding US-Iran negotiations remained volatile. Initial optimism followed reports that President Trump might offer sanctions relief in exchange for nuclear talk progress, although he later denied the report. As the week progressed, expectations for a resolution prior to midterm elections faded and concerns the conflict could potentially re-escalate built. West Texas Intermediate (WTI) crude traded modestly lower for the week but remained elevated above $91/barrel as of Friday morning. Oil remains an important input for forward inflation expectations, corporate margins, consumer demand, and the Fed’s policy path.
While a cooler-than-expected core PCE reading Wednesday did not produce a risk-on response, Friday’s softer September employment report did. Annualized core PCE for August came in at 3.0%, below the 3.3% consensus; stronger private-sector hiring data out Wednesday may have tempered the market’s reaction. Friday’s September Nonfarm Payrolls release showed an increase of 29,000, well below the 90,000 consensus figure, prompting a Friday morning rally in US equities. Investors viewed the result as soft but not contractionary, lifting hopes the Fed could hold rates steady at its next meeting. According to the CME FedWatch Tool, the probability of a rate increase at the Fed’s October meeting fell to 20.5% as of Friday morning, down from 64.2% one week earlier. Even so, the probability of at least one additional rate increase before year-end stood at 86.5%.
Although headline U.S. equity index performance has appeared relatively resilient of late, underlying market breadth has deteriorated materially. With several mega-cap technology companies helping to drive market performance late in the third quarter, the S&P 500 Equal Weight Index lagged the capitalization-weighted index by more than 5% in September. The upcoming third-quarter earnings season, amongst other items, will help determine if market breadth can once again broaden into year-end.
As of October 1, 2026
|
Index |
Current Week |
Month of Oct. |
YTD |
|
Dow Jones Industrial Avg. |
-1.74% |
0.04% |
7.23% |
|
S&P 500 |
-0.98% |
0.20% |
12.97% |
|
Nasdaq |
-0.72% |
0.04% |
16.14% |
|
MSCI EAFE |
-1.85% |
-1.34% |
9.32% |
|
Russell Mid Cap |
-0.62% |
0.85% |
12.80% |
|
Russell 2000 |
-1.04% |
0.35% |
14.11% |
