The Biggest Tail Risk Shifts from AI Bubble to Interest Rates—Stock Prices Remain Resilient Even at 5.53% for 30-Year Bonds, While -408 Lurks Beneath | September 27, 2026 …
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Sho Nakajima | Foreign Exchange Trader
Summary
The US market last week was a week where stock prices showed resilience despite the strong headwind of soaring interest rates. The 10-year Treasury yield reached its highest level since 2007, and the 30-year yield briefly hit 5.53%, its highest level since 2004, spreading a sense of caution in the market that “interest rates will keep rising until something breaks.”
Nevertheless, the three major indices all rose for the week. The Dow was up 0.3%, the S&P 500 up 1.2%, and the Nasdaq up 2%. Meta Platforms’ stock price rose about 13% for the week, approaching the $2 trillion market capitalization milestone.
The primary concern for investors has shifted. In the BofA fund manager survey, the tail risk cited by the most investors became “disorderly rise in bond yields,” taking the spot from the previous leader, the “AI bubble.” Moreover, this survey was conducted before the 10-year Treasury yield broke through 5%.
However, a different landscape is unfolding beneath the resilience of the indices. The indicator calculated by subtracting the number of new 52-week lows from the number of new 52-week highs on the New York Stock Exchange fell to -408 on September 24. Excluding the sharp decline known as “Liberation Day,” this is the weakest level since October 2023. The Nasdaq version also fell to -403.
Today’s Market Overview
Asset Closing Price Change/Level S&P 500 7,743.41 +0.51% (Weekly +1.2%) Nasdaq Composite 27,068.72 +0.48% (Weekly +2%) Dow Jones Industrial Average 51,828.62 +0.93% (Weekly +0.3%) Russell 2000 — +0.07% VIX Index 14.87 -5.11% Information Technology Sector (Weekly) — +3.1% (Largest among 11 sectors) Meta Platforms (Weekly) — Approx. +13% (Approaching $2 trillion market cap) Philadelphia Semiconductor Index — 4th consecutive week of gains STOXX Europe 600 638.65 +0.35% (First weekly gain in a month) DAX/FTSE 100 25,408.64/10,695.25 +0.56%/+0.14% CAC 40/FTSE MIB 8,077.8/51,866.93 -0.04%/+0.63% IBEX 35/OMXS30 19,700.1/3,295.03 +0.65%/+0.73% Nikkei 225 66,364.2 +1.3% TOPIX Banks Index — +4.1% (Highest gain in about 5 months) Hang Seng/Shanghai Composite — -1.01%/-1.22% Shenzhen Component/Nifty 50 — -2.34%/+0.34% US 10-Year Yield 5.16% range Highest since 2007 US 30-Year Yield Briefly 5.53% Highest since 2004 US 2-Year Yield 4.86% Lower (Twist steepening) 5Y/30Y Spread 50bp Widening MOVE Index (Weekly) — Approx. +30% (Largest since April 2025) 30-Year Fixed Mortgage Rate 7.45% Highest since April 2024 German 30-Year Yield — Highest since 2011 Japan 10Y/2Y 3.075%/1.935% Flat/+3.5bp Japan 5Y/40Y 2.400%/-1.0bp Dollar-Yen 157.26 -0.998% (Briefly 156.94 yen) Euro-Dollar/Euro-Yen 1.139/179.13 Almost unchanged/-0.893% Pound-Dollar 1.325 +0.26% WTI Crude $92.44 -2.29% Brent Crude (Nov contract) $104.32 -2.1% Brent Prompt Spread Nearly $7 Last month was under $1 Gold/Silver $4,320.5/$64.71 Slightly higher (down for the week)/+1.11% Natural Gas/RBOB Gasoline — -2.52%/-4.31%
I. Stock Prices Remain Resilient Despite Soaring Interest Rates
In trading on September 25, the S&P 500 closed at 7,743.41, up 0.51% from the previous day; the Nasdaq Composite closed at 27,068.72, up 0.48%; and the Dow Jones Industrial Average closed at 51,828.62, up 0.93%. On a weekly basis, the Dow was up 0.3%, the S&P 500 up 1.2%, and the Nasdaq up 2%, with all rising throughout the week. The VIX fell 5.11% from the previous day to 14.87, indicating a retreat in short-term overheating.
By sector, the information technology sector rose 3.1% for the week, the largest gain among the 11 S&P 500 sectors. The background to this is that Meta Platforms’ stock price rose about 13% for the week, approaching the $2 trillion market cap milestone. Expectations for the personal AI assistant “Muse” announced by the company have risen rapidly, causing skepticism about AI investment to recede. The Philadelphia Semiconductor Index (SOX), a benchmark for semiconductor stocks, also rose for the fourth consecutive week, entering a long-term uptrend since May.
Looking at the content of this stock price rise, it is strongly characterized by growth stock leadership. Akamai Technologies rose 3% following the announcement of a 7-year, $11.6 billion computing contract with major AI developer Anthropic, and was up about 21% for the year. Large-scale AI-related contracts of this type have thematic significance that influences the sentiment of the entire index, making them highly important among individual stock news.
However, caution is required from the perspective of market breadth. It is notable that the rise in the Russell 2000 (small-cap index) was limited to 0.07% compared to the major indices. While capital continues to concentrate in large-cap tech stocks, the burden of rising yields is being felt in the broader market. In the medium term, with interest rates remaining high, the cost of capital for small and mid-cap companies and highly leveraged firms is rising, creating a structure where relative performance gaps are likely to widen.
Signs of price-sensitive behavior are also emerging from the consumer front. PepsiCo indicated a policy of shifting to price increases for some products, as sales did not grow despite price cuts. In Costco’s earnings, while tariff refunds boosted profits, membership growth fell short of expectations. Looking at the macro picture as a whole, the spread of price-sensitive consumer behavior leads to medium-term themes of sticky inflation and pressure on real purchasing power.
In economic indicators, a deterioration in consumer sentiment and a rise in inflation expectations were confirmed simultaneously. The University of Michigan Consumer Sentiment Index for September was 48.1, which, while slightly above market expectations, deteriorated from the previous month to its lowest level in four months. One-year inflation expectations rose to 4.6%, the highest level since June.
The September employment report, scheduled for release on the 2nd of next month, is expected to show an increase of approximately 90,000 in non-farm payrolls with an unemployment rate of 4.1%, and the August PCE price index, to be released on the 30th, is also projected to show its largest increase in over a year at 0.5% month-over-month. If these indicators align with expectations, they could bolster speculation that the Fed will proceed with an additional rate hike in October, potentially leading to continued tension in the interest rate market.
Meanwhile, BofA expects the September employment report to show an increase of only 60,000 in non-farm payrolls. This is below the market consensus of a 100,000 increase. However, the firm analyzes that the weak September figure is primarily a reaction to the unusually favorable seasonal adjustment factors seen in August, and that the actual underlying job growth is above 100,000. The break-even point calculated by the firm is 20,000.
II. Twist Steepening and the Surge in the MOVE Index
The undisputed protagonist of the current market is the interest rate market.
The U.S. 10-year Treasury yield rose to the 5.16% range, and the 30-year yield briefly climbed to 5.53%, both reaching their highest levels since 2007 and 2004, respectively. Meanwhile, the 2-year yield fell to 4.86%, and the yield spread between the 5-year and 30-year bonds widened to 50 basis points.
This movement, where short-term rates fall slightly while long-term rates rise, is called “twist steepening,” and as a shape of the yield curve, it suggests that concerns regarding fiscal policy and supply are strongly manifesting in the long-term zone.
Multiple factors are intertwined behind this sharp rise. Cleveland Fed President Hammack explained that the resilience of economic growth, expectations for additional Fed rate hikes, and concerns over ballooning government debt are the factors driving the yield increase. The MOVE index, a volatility indicator for U.S. Treasuries, rose by approximately 30% for the week, marking its largest gain since the “Liberation Day” shock in April 2025. In the swap market, the probability of an additional rate hike at the October FOMC has been priced in at approximately 70%, rising sharply from near zero at the beginning of the month.
The terminal policy rate priced in by the market is also rising rapidly. The maximum assumed rate calculated from SOFR futures was stable at around 3.625% as of September 2025, but it has recently reached 4.58%. According to the analysis by BMO’s rate strategy team, the market expects a total of 92 basis points of rate hikes over the coming quarters, meaning three to four hikes in 0.25% increments. The team notes that based on past experience, it is rare for the Fed to be satisfied with a single 0.25% policy change, indicating a view that there will be at least three rate hikes totaling 0.75%.
The spillover to the real economy is already becoming apparent. The 30-year fixed mortgage rate reached 7.45%, its highest level since April 2024. Some on Wall Street are even suggesting that the 30-year Treasury yield could reach 6% by the end of the year.
There is also historical backing for this 6% scenario. According to an analysis compiled by Jim Reid of Deutsche Bank, in Fed monetary tightening cycles since 1963, the 10-year Treasury yield has followed a consistent pattern after the start of rate hikes. The yield tends to trend slightly downward in the year before tightening begins, reverses and starts to rise immediately after the start, and peaks approximately one year after the start. He points out that if this historical path is applied directly, yields could continue to rise gradually but steadily over the next year, potentially reaching 6% if the Fed actually implements rate hikes.
However, there is one important point regarding the primary cause of this yield increase. An analyst at BNP Paribas believes that the role played by the fiscal deficit in the approximately 100-basis-point rise in 10-year and 30-year Treasury yields over the past six months has been “almost non-existent.”
One piece of evidence is swap spreads. In 2026 data, the 30-year spread is widening in parallel with the rise in yields. This is a different movement from cases where only government bonds are heavily sold due to anxiety over fiscal deterioration, pushing government bond yields relatively higher. Term premiums are also stable, and the number of news items dealing with fiscal deficits has not increased as much as it did during the period when concerns rose in 2023.
A similar point is being made from the breakdown of yields. According to Jim Reid of Deutsche Bank, the break-even inflation rate that constitutes the 10-year Treasury yield has been stable within a very narrow range for over three years since 2023, showing almost no major fluctuations. Meanwhile, real yields have moved the overall yield level during this time by repeatedly rising and falling. If the bond market were truly concerned about a resurgence of inflation, what level should the 10-year Treasury yield be at right now?—he asks.
However, there is still room for a change in perspective. BNP Paribas cites interest rate hikes, the re-expansion of the deficit, and the midterm elections as factors increasing interest in the fiscal deficit. If the Treasury Department is becoming increasingly dependent on short-term government bonds, interest rate hikes are likely to increase the burden of interest payments through refinancing. While it is crucial not to explain the current rise in interest rates solely by the fiscal deficit, at the same time, it does not mean that what has not been a primary cause until now will not become one in the future.
On the other hand, there are also forecasts in the opposite direction. Morgan Stanley has revised its U.S. Treasury yield forecast downward, changing its assumption to two additional interest rate cuts by the Fed—one more than the number of cuts currently priced into the market. The firm’s forecast projects that the 10-year yield will fall to 4.70% and the 30-year yield to 4.90% by the fourth quarter of 2027.
III. The Biggest Tail Risk Has Shifted
According to the latest results of the Global Fund Manager Survey conducted by BofA, the top tail risk that market participants are most wary of has changed.
The risk cited by the most investors in this survey was “a disorderly rise in bond yields,” taking the top spot from the “AI bubble,” which was the leader in the previous survey.
Looking at the survey results, investors who cited “a disorderly rise in bond yields” reached about 33% of the total, followed by **”AI bubble” at about 28% and “resurgence of inflation (second wave)” at about 24%**. Investors who cited geopolitical conflict remained relatively few at about 6%, those who cited a scenario where the Democratic Party wins both houses in the November U.S. midterm elections at about 5%, and those who cited a decline in confidence in the U.S. dollar at about 2%.
It is worth noting that this survey was conducted before the global bond sell-off intensified and the U.S. 10-year Treasury yield broke through 5%. In other words, given the current situation where interest rates have risen even further than at the time of the survey, it is highly likely that investors’ sense of caution is stronger than the survey results suggest.
Concerns about the AI bubble have not receded, and as it still gathers the second-highest number of votes, the sense of overheating in AI-related investments has not disappeared from investors’ minds. However, the fact that the situation has changed to one where caution regarding the impact of a rapid rise in interest rates itself on the market takes precedence indicates that the center of gravity of the entire financial market is shifting significantly toward interest rate trends.
In terms of stock valuation, calmness is actually being confirmed. The forward P/E ratio of the S&P 500 information technology sector is 20.5 times, which is a level significantly lower than the approximately 26 times recorded at the beginning of June. Compared to the 10-year average of 23 times, it is currently in an undervalued state. Given that the forward P/E ratio of the same sector jumped to nearly 50 times during the dot-com bubble in the late 1990s, the current level is less than half of that peak.
Nevertheless, cautious views on the sustainability of AI investment itself are emerging within the market. Goldman Sachs pointed out that while it expects AI-related capital expenditure by the five hyperscalers to increase by more than 50% next year to reach $1.2 trillion, it will require about $300 billion in annual AI-related revenue to recoup the investment. The firm’s team of strategists has indicated a forecast that the ratio of capital expenditure to GDP in 2027 will be the largest since the railroad construction boom in the late 19th century.
In fact, portfolio managers at Goldman Sachs Asset Management have expressed caution regarding the rush of corporate bond issuance by hyperscalers, revealing an investment stance of keeping bonds in that sector at a lower ratio than the benchmark. They do not deny the expectations for AI itself, but they see a risk that massive bond issuance will distort price formation. Regarding semiconductor giants Nvidia and Broadcom, cautious remarks have also emerged from securities firm Seaport that “the path to upside is difficult to see,” suggesting that it is a phase where selection among individual stocks within the AI theme is intensifying.
The signal from the credit market is even more direct. As SoftBank Group continues its massive investment in U.S.-based OpenAI, the **longest-dated interest rate on the approximately $11 billion in dollar-denominated junk bonds it finalized this week reached a record high of 9.75% for the company’s dollar bonds**. This level still exceeds the average U.S. corporate bond yield for the same rating, reflecting the rising cost of funding that supports the AI boom.
The coexistence of the equity-side view, which emphasizes the undervaluation of AI-related stocks, and the credit-side view, which is wary of the leverage in AI investment, demonstrates the risk of judging this theme solely by stock valuations. In the short term, the trend is likely to continue as long as AI-related funding demand and hyperscalers’ investment plans do not collapse, but in the medium term, if the valuations of major investment targets fall, it could spill over to the equity side through a further rise in funding costs.
IV. Internal Deterioration and Shaky Positions
While indices maintain high levels, indicators measuring the strength and weakness of the market’s internals are weakening rapidly.
The indicator calculated by subtracting the number of new 52-week lows from the number of new 52-week highs on the New York Stock Exchange fell to minus 408 on Thursday, September 24. A similar indicator for the Nasdaq also dropped to minus 403.
What is noteworthy is the level of this decline. The NYSE value of minus 408 is the weakest level since October 2023, excluding the sharp sell-off periods known as ‘liberation days.’ The Nasdaq’s minus 403 is also the weakest figure in recent times, excluding the sharp decline in April (and previous liberation days).
The fact that this deterioration in internal indicators is occurring simultaneously while stock indices themselves remain near all-time highs is a sign that market participants cannot ignore. The narrowing of the group of stocks leading the rise is a typical pattern indicating market fragility, and it is a factor that requires caution in future price movements.
Active managers’ positioning is fluctuating significantly. The survey index published by the National Association of Active Investment Managers (NAAIM) jumped 16 points in one week from 71.9 to 88.1 in the latest announcement. The previous week’s level of 71.9 was the lowest figure since April 14. This 16-point rise is the second-largest one-week change in the past year, following the sharp fluctuation in April of this year.
However, there is a point to note. The level of 102.66 recorded at the end of August was the highest figure since July 2024, and exceeding 100 means that managers were in a so-called ‘margin-used state,’ where they were investing in stocks on a scale exceeding their own capital. The current 88.1 is still significantly below that level.
Active managers’ stances have swung significantly from bullish to bearish and back to bullish within a few weeks, confirming the high level of uncertainty regarding the overall market direction.
There is also a clear characteristic regarding who is building positions. The equity positioning indicator calculated by Deutsche Bank’s asset allocation division rose slightly this week to 0.25 standard deviations, 58th percentile, reaching a level of mild overweight.
However, looking at the breakdown, discretionary investors’ positioning is at minus 0.29 standard deviations and the 28th percentile, which is merely a recovery from a clear state of under-positioning to a state of slight under-positioning. On the other hand, systematic investment strategy positioning has reached 0.91 standard deviations and the 89th percentile, continuing to hit new highs since October 2025.
Although overall market capital allocation is gradually becoming more aggressive, it is characteristic that the movement is led by mechanical rule-based operations rather than human judgment. Discretionary investors have not abandoned their cautious stance.
Retail investor involvement is also calming down. According to Scott Rubner of Citadel Securities, cash trading of semiconductor stocks on retail trading platforms fell from a peak of 1.83 times in June 2026 to 0.97 times month-to-date in September. The daily new buy premium in options trading has also decreased from a peak of $395 million in June to $217 million in September. Both represent a decline of over 45%.
However, he emphasizes that this should not be interpreted as a movement of capital withdrawal or selling. His view is that ‘retail investors have not withdrawn capital from AI-related stocks, but the level of engagement itself has declined,’ and indicators showing buying and selling direction are still slightly tilted toward buying. It can be said that the frenzy for AI-related stocks has settled down, and the market is in a phase of shifting to a more composed participation stance.
Seasonality also calls for caution at this time. According to the Stock Trader’s Almanac, which analyzes the seasonality of the U.S. stock market, weakness in the latter half of September becomes even more pronounced in midterm election years. Comparing data since 1950 by trading day, both show relatively moderate movements until around the 9th trading day, but the decline in midterm election years deepens significantly beyond the annual average, especially from the 16th trading day onwards.
The decline toward the final week is particularly sharp, with the Nasdaq Composite Index in midterm election years expected to fall by about minus 1.6% and the Russell 1000 Index by about minus 1.8%.
V. Resilience of Capital Investment and Movements in Japan and Europe
In contrast to the tension between interest rates and internal indicators, investment activity in the real economy is steadily accumulating.
August durable goods orders were 0.0% month-on-month, exceeding the market forecast of minus 0.3%, while slowing significantly from the July preliminary figure of 1.1%. However, the July figure was revised upward to 0.9%. The main reason for the sluggish growth in overall orders is the decline in orders in the transportation equipment sector, such as aircraft.
The most noteworthy point this time is ‘non-defense capital goods orders (excluding aircraft).’ This is a leading indicator showing how much companies intend to invest in new production equipment and machinery, and is effectively positioned as a ‘proxy indicator for corporate capital investment.’ This item increased by 1.6% month-on-month, significantly exceeding the market forecast of 0.6%. Moreover, the July figure was also revised upward from the initial zero to a 0.59% increase, meaning the actual situation was even stronger. Three out of the past four months have recorded growth at or above this level, indicating that corporate investment appetite is not a temporary phenomenon but a continuous trend.
It should be noted that for quarterly GDP calculations, the figure for “shipments” is used rather than orders themselves. This time, non-defense capital goods shipments (excluding aircraft) rose 0.6% month-on-month, falling short of the market expectation of 0.8%. However, the July figure was revised upward from the initial 1.2% to 1.43%, marking the seventh consecutive month of growth.
Furthermore, looking at the year-on-year comparison, it stood at an 11.39% increase as of the most recent data in August. This is the highest growth rate since February 2022 and serves as an important indicator that corporate capital investment is on a long-term recovery trajectory. Following these results, Goldman Sachs immediately raised its real GDP estimate for the third quarter by 0.1 percentage points to an annualized rate of 3.4%.
Note that third-quarter GDP trackers are generally converging in the mid-2% range. BofA is at 2.60%, Goldman Sachs at 2.50%, JPMorgan at 2.75%, Morgan Stanley at 2.00%, the New York Fed at 2.26%, and the St. Louis Fed at 2.41%. In contrast, only the Atlanta Fed stands out, with GDPNow at 5.02% as of September 25. However, it is known that this model tends to show higher figures early in the quarter and then approach other estimates as more data accumulates.
Economic resilience is not a phenomenon unique to the United States. According to Goldman Sachs’ Current Activity Indicator (CAI), for the period since mid-2026, it has been tracking at a level clearly above the 1.6% potential growth rate for developed economies estimated by the firm. A state of remaining above the potential growth rate means that the economy is in a condition close to overheating. This can be seen as evidence suggesting that central banks around the world have room to maintain a tightening stance in their global monetary policy operations.
In Europe, a warning signal has emerged for ultra-long-term bonds. European stocks were generally firm on the 25th, with the STOXX Europe 600 index at 638.65, up 0.35% from the previous day, and recording its first weekly gain in a month. Switzerland’s UBS Group rose 3.5% following reports of a potential merger with a foreign bank, driving the index’s gains.
However, in the bond market, German 30-year bond yields reached their highest level since 2011. The spreads between German 2-year and 30-year bonds, as well as 5-year and 30-year bonds, have both widened significantly, leading to a steepening of the yield curve.
Meanwhile, a different dynamic was at work for short-term bonds. Following a 4.5% drop in European gas futures to 71.75 euros per megawatt-hour, market expectations for ECB rate hikes receded, and short-term bonds rose. In other words, a twisted curve formation is occurring where the retreat of inflation concerns is pushing interest rates down in the short-term zone, while fiscal and supply-demand factors are having a stronger effect in the ultra-long-term zone, causing yields to rise.
Bank of England Governor Bailey expressed the view that if the price shock associated with the situation in Iran persists, the likelihood of a rate hike will increase. Furthermore, he stated that by the time definitive evidence of secondary effects emerges, the response will already be too late, hinting at a proactive stance. The market is pricing in a 21bp rate hike by the Bank of England in November, and a total of 36bp of hikes within the year.
In the oil market, a decline in near-term prices and a tightening of physical supply and demand are occurring simultaneously. WTI fell 2.29% from the previous day to $92.44 per barrel, and Brent November futures also fell 2.1% to $104.32. This is against the backdrop of expectations for progress in negotiations between the U.S. and Iran toward reopening the Strait of Hormuz.
However, the opposite signal is appearing in the physical market. The prompt spread for Brent crude has widened from less than $1 per barrel at the end of last month to nearly $7, intensifying the backwardation that indicates tight supply and demand. In addition, the premium for immediate delivery crude at Cushing, Oklahoma, a major oil storage hub, has jumped to a record high. Standard Chartered analysts point out that **”even if there is a diplomatic breakthrough, disrupted supplies will not recover immediately.”** Furthermore, President Trump revealed on the 26th that he had rejected the proposal for opening the Strait of Hormuz presented by the Iranian side, leaving diplomatic progress still uncertain.
The tightening of the transport market is even more dramatic. Estimated daily earnings for very large crude carriers were around $100,000 per day for all three major routes at the beginning of 2026. Recently, however, the route from Yanbu to South Korea has approached nearly $900,000 per day, the route from West Africa to China is about $540,000, and the route from the U.S. Gulf Coast to China is about $370,000. The fact that all three routes are rising suggests that the impact of the disruption is not limited to specific segments.
In Asia, the fortunes of Japan and the Greater China region diverged. On the 25th, the Nikkei Stock Average rose significantly by 1.3% to 66,364.2, while mainland Chinese and Hong Kong indices were uniformly weak, with the **Hang Seng Index down 1.01%, the Shanghai Composite Index down 1.22%, and the Shenzhen Component Index down 2.34%**. The background lies in the gap between expectations for the US-China summit and the actual results.
Looking inside Japanese stocks, about 70% of TOPIX constituents rose, marking a broad-based rally that recorded the highest rate of increase since August 5. In particular, the TOPIX Banks Index rose 4.1%, the largest gain in about five months, benefiting from rising interest rates. Conversely, SoftBank Group and some construction stocks were weak, and AI/semiconductor-related stocks also struggled to gain ground due to the rise in US long-term interest rates.
In the foreign exchange market, comments from Japanese finance and economic ministers significantly moved the yen exchange rate. Finance Minister Satsuki Katayama revealed that President Trump had expressed concern about the weak yen during the US-Japan summit, and Prime Minister Takaichi also stated that she had conveyed to Mr. Trump that “the undervaluation of the yen is a problem” as a general matter. Economic and Fiscal Policy Minister Joto’s mention that “the phase of reflationary policy is over” also supported yen buying, and the dollar-yen fell 0.998% from the previous day to 157.26.
After a phone call with Finance Minister Katayama, US Treasury Secretary Bessent expressed the view that “a strong yen reflecting Japan’s solid economic fundamentals is desirable.” Goldman Sachs revised its one-year dollar-yen forecast from the previous 165 yen to 150 yen, and Bank of America also lowered its year-end forecast from 152 yen to 149 yen.
However, caution remains among market participants. A strategist at Saxo Markets described the ministerial comments as **”nothing more than another form of verbal intervention.”** A Nomura currency strategist also expects the dollar-yen to move within a wide range of 155-160 yen for the time being, viewing actual intervention as conditional on exceeding 160 yen.
In the Japanese government bond market, there were twisted movements across different maturities. Although the yield on the newly issued 10-year JGB remained flat at 3.075%, the 2-year bond rose to 1.935% (+3.5bp) and the 5-year bond to 2.400% (+2.5bp), with increases centered on shorter maturities. Meanwhile, the ultra-long 20-year and 30-year bonds remained flat, and the 40-year bond fell slightly. While it is possible that the fiscal premium on ultra-long bonds, which had accumulated due to concerns about fiscal expansion following Minister Joto’s remarks, was partially unwound, the short-to-medium term appears to have directly reflected expectations for additional Bank of Japan rate hikes.
Consumer prices excluding special factors, announced by the Bank of Japan on the same day, rose 2.6% year-on-year in August, exceeding the BOJ’s 2% target for the 23rd consecutive month. The trimmed mean and weighted median also saw their range of increases expand, which can be positioned as material supporting expectations for additional rate hikes within the year.
Indicator List
Indicator | Latest Value | Previous/Comparison | Key Points | S&P 500/Nasdaq/Dow (Weekly) | +1.2% / +2% / +0.3% | All three indices rose | Maintained resilience despite sharp interest rate hikes | VIX Index | 14.87 | -5.11% | Retreat of short-term overheating | Information Technology Sector (Weekly) | +3.1% | Largest among 11 sectors | Meta up about 13% weekly | Meta market cap approaching $2 trillion | Expectations for “Muse” rising rapidly | Skepticism about AI investment receded | Philadelphia Semiconductor Index | 4th consecutive week of gains | Longest uptrend since May | — | Russell 2000 | +0.07% | Limited compared to major indices | Concentration of funds in large-cap tech continues | Akamai | +3% (Full year approx. +21%) | 7-year $11.6 billion contract with Anthropic | Large AI contracts have thematic significance | US 10-year/30-year Bonds | 5.16% range / 5.53% at one point | Highest since 2007 / 2004 | Both at multi-decade highs | US 2-year Bond | 4.86% | Decline | 5-year/30-year spread widened to 50bp | MOVE Index (Weekly) | Approx. +30% | Highest since April 2025 | Volatility in the bond market surged | October FOMC Pricing | Approx. 70% | Nearly zero at start of month | Rose sharply | SOFR Futures Max Expected Rate | 4.58% | September 2025 is around 3.625% | BMO expects total of 92bp, 3-4 times | 30-year Fixed Mortgage Rate | 7.45% | Highest since April 2024 | Spillover to the real economy becoming evident | DB Ride’s Analysis | 6% if rates are hiked | Pattern since 1963 | Path peaks 1 year after start | BNP Paribas View | Role of fiscal deficit is “almost none” | Swap spreads widening in parallel | Term premium also stable | 10-year Breakeven | Almost no change for over 3 years | Real yields driving the whole | Inflation vigilance not significantly heightened | BofA FMS | Biggest tail risk | Disorderly rise in bond yields (approx. 33%) | Previous leader was AI bubble | Survey conducted before 10-year bond broke 5% | Same 2nd/3rd place | AI bubble approx. 28% / Second wave of inflation approx. 24% | — | AI concerns have not disappeared | IT Sector Forward P/E | 20.5x | Approx. 26x at start of June | Below 10-year average of 23x | GS Hyperscaler Capex | Next year $1.2 trillion | Over 50% increase | Approx. $300 billion/year needed for recovery | SBG Dollar-Denominated Junk Bonds | Longest maturity 9.75% | Highest ever for company dollar bonds | Approx. $11 billion scale | NYSE New Highs – New Lows (9/24) | -408 | Weakest since October 2023 excluding “Liberation Day” | Nasdaq version also -403 | NAAIM Index | 88.1 | Previous week 71.9 (+16pt) | 2nd largest change in past year after April | DB Equity Positioning | 0.25σ (58th percentile) | Mild overweight | Discretionary -0.29σ, System 0.91σ | Individual Semiconductor Stock Trading | Down over 45% from June | Spot 1.83x -> 0.97x | “Reduced involvement” rather than withdrawal | Midterm Election Year Late September | Nasdaq approx. -1.6% | Russell 1000 approx. -1.8% | Declines deepen after 16th trading day | August Non-Defense Capital Goods Orders (ex-aircraft) | +1.6% | Forecast +0.6% | July also revised upward from 0 to +0.59% | Same Shipments (YoY) | +11.39% | Highest since February 2022 | 7th consecutive month of increase | GS Q3 Real GDP Estimate | Annualized 3.4% | +0.1pt upward revision | Other 6 institutions converged to 2.0-2.75% | Atlanta Fed GDPNow | 5.02% | 9/16 was 5.10% | Blue chip is about 2.6% | GS Current Activity Indicator (Developed Countries) | Clearly exceeds potential growth of 1.6% | — | Economy near overheating | German 30-year Bond Yield | Highest since 2011 | Spread with 2-year/5-year widened | European Gas Futures -4.5% | BOE Rate Hike Pricing | November 21bp / Within year 36bp | Governor Bailey mentioned energy prolongation | “Response is likely delayed” | Brent Prompt Spread | Nearly $7 | Less than $1 at end of last month | Cushing premium at record high | VLCC Estimated Daily Earnings | Yanbu -> Korea approx. $900,000 | Around $100,000 for all 3 routes at start of year | West Africa -> China approx. $540,000 | Nikkei/TOPIX Banks | +1.3% / +4.1% | 66,364.2 / Largest gain in about 5 months | About 70% of TOPIX constituents rose | Dollar-Yen | 157.26 | -0.998% (156.94 at one point) | Yen rebounded sharply on ministerial comments | GS/BofA Dollar-Yen Forecast | 150 yen / 149 yen | Previous 165 yen / 152 yen | Both revised downward | Japan Consumer Prices (ex-special factors) | YoY +2.6% | Over 2% for 23 consecutive months | Supported expectations for additional rate hikes within the year
Points to Note
First, the target investors are most wary of has changed. In the BofA Fund Manager Survey, “disorderly rise in bond yields” took the top spot at about 33%, surpassing the previous leader, the “AI bubble.” Moreover, this survey was conducted before the 10-year bond broke through 5%.
Second, the rise in interest rates is taking the form of a twist steepening. While the 2-year bond yield has fallen to 4.86%, the 30-year bond reached 5.53% at one point. The spread between the 5-year and 30-year bonds has widened to 50bp, indicating that concerns about fiscal policy and supply are strongly reflected in the long-term zone.
Third, there is disagreement regarding the main cause of the yield rise. BNP Paribas sees the role of the fiscal deficit as “almost none,” citing the fact that swap spreads are widening in parallel with the yield rise as evidence. Deutsche Bank also points out that breakeven rates have barely moved for over three years.
Fourth, the internal health of the market is deteriorating rapidly. The NYSE new highs minus new lows fell to -408 on September 24, the weakest level since October 2023, excluding “Liberation Day.”
Fifth, it is machines that are building positions. DB’s equity positioning is a mild overweight at 0.25σ, but discretionary investors are at -0.29σ, while systematic operations are at 0.91σ, a new high since October 2025. Human judgment remains cautious.
Sixth, corporate capital investment is steadily accumulating. Non-defense capital goods orders rose 1.6% month-on-month, and shipments increased for the seventh consecutive month, up 11.39% year-on-year, the highest growth since February 2022. This is in contrast to the superficial stagnation in durable goods orders.
Seventh, for crude oil, a decline in near-term prices and a tightening of physical supply are occurring simultaneously. The Brent prompt spread has widened from less than $1 to nearly $7, and daily VLCC earnings are approaching $900,000 for the Yanbu-to-Korea route.
Terminology Notes
Tail Risk A risk that has a low probability of occurrence but would cause significant damage to the market if realized. In fund manager surveys, it is used as a fixed-point observation to measure what investors see as the greatest threat.
Twist Steepening A movement where short-term interest rates fall while long-term interest rates rise, causing the yield curve to steepen. It indicates that near-term policy rate expectations and long-term fiscal/supply-demand concerns are working in different directions.
MOVE Index An indicator showing the expected volatility of the U.S. Treasury market. It is equivalent to the VIX for stocks, and a higher value means increased uncertainty in the bond market.
Prompt Spread The price difference between the two nearest delivery months of crude oil futures. A widening spread where the near-term price is higher (backwardation) indicates that immediate physical supply and demand are tight.
Outlook and Key Dates
Category Content Value/Date Supporting Factor All 3 indices rose for the week Dow +0.3%, S&P 500 +1.2%, Nasdaq +2% Supporting Factor Resilience in capital investment Shipments up for 7 consecutive months, +11.39% YoY Supporting Factor Valuation stability Forward P/E for Information Technology is 20.5x Supporting Factor Momentum in developed economies GS CAI is clearly above the potential growth rate of 1.6% Supporting Factor MS yield forecast downward revision 10-year Treasury at 4.70%, 30-year at 4.90% in Q4 2027 Warning Factor Shift in tail risk “Disorderly rise in bond yields” leads at about 33% Warning Factor 30-year yield at 5.53% and MOVE +30% Highest since 2004. Volatility saw its largest rise since April 2025 Warning Factor Rapid deterioration of internal indicators NYSE -408, Nasdaq -403 Warning Factor Machines leading the positioning Discretionary -0.29σ vs. Systematic 0.91σ Warning Factor Late September in midterm election year Declines deepen after the 16th trading day Warning Factor Rise in AI procurement costs SBG’s longest maturity is 9.75%, the highest ever for its dollar bonds Schedule August PCE Price Index September 30. Expected +0.5% MoM, the largest increase in over a year Schedule September Employment Report October 2. Expected increase of about 90,000, unemployment rate 4.1% Schedule October FOMC Pricing in additional rate hikes is about 70% Schedule U.S.-China APEC Summit November. Trade truce extended until January 10 next year Schedule U.S. Midterm Elections November. Potential for changes in the dynamics of China policy
Conclusion
The U.S. market last week showed resilience in stock prices despite the strong headwind of surging interest rates.
The 10-year Treasury yield reached the 5.16% level, the highest since 2007, and the 30-year yield briefly hit 5.53%, the highest since 2004. The MOVE index rose about 30% for the week, marking its largest gain since the “Liberation Day” shock of April 2025. Nevertheless, all three major indices rose for the week, and Meta rose about 13% for the week, approaching the $2 trillion market cap milestone.
The primary concern for investors has shifted. In the BofA fund manager survey, “disorderly rise in bond yields” took the top spot at about 33%. The previous leader, “AI bubble,” fell to second place at about 28%. Moreover, this survey was conducted before the 10-year yield broke through 5%. This indicates that the center of gravity for the entire financial market is shifting significantly from AI to interest rates.
There is an interesting point regarding the nature of that interest rate rise. BNP Paribas believes that **the fiscal deficit has played “almost no role” in the approximately 100bp rise over the past six months.** Deutsche Bank also pointed out that the 10-year Treasury breakeven has barely moved for over three years, suggesting that market inflation concerns may not have risen significantly. What has been driving yields is primarily real yields.
However, beneath the resilience of the indices, a different landscape is unfolding. The NYSE new highs minus new lows fell to -408 on September 24, the weakest level since October 2023, excluding “Liberation Day.” The Nasdaq version was -403. The narrowing of the group of stocks leading the rise is a typical pattern indicating market fragility.
It is also suggestive who is building positions. DB’s equity positioning is a mild overweight at 0.25σ, but discretionary investors are at -0.29σ (28th percentile), while systematic operations are at 0.91σ (89th percentile), a new high since October 2025. Human judgment remains cautious, and the push for more aggressive positioning is being led by operations based on mechanical rules.
On the other hand, investment activity in the real economy is steady. Non-defense capital goods orders rose 1.6% MoM, and shipments recorded their seventh consecutive monthly increase, up 11.39% YoY, the highest growth since February 2022. GS has raised its Q3 real GDP estimate to 3.4% annualized.
The August PCE price index on the 30th, the September employment report on October 2nd, and the October FOMC, where an additional rate hike is about 70% priced in. With interest rates at levels not seen in decades, whether the resilience of the indices or the internal fragility converges will define the quality of the market for the time being.
Disclaimer
This article is for informational purposes only and does not recommend the buying or selling of any specific financial products. It does not constitute investment advice or brokerage services, and investment decisions should be made at your own risk. While the information provided is based on sources deemed reliable, its accuracy and completeness are not guaranteed. Investments in financial products may result in a loss of principal due to price fluctuations, interest rate changes, currency fluctuations, etc. The author assumes no responsibility for any damages incurred based on the information in this article.