September 29, 2026

10-Year Treasury Hits 19-Year High, AI Stocks Show Mixed Results: Meta Down 4.8% vs. Nvidia Rallies on Expanded Buybacks

sweetstrader | Former Mitsubishi UFJ Morgan Stanley Securities Foreign Exchange Trader | @sweetstrader3

3-Line Summary

U.S. stocks fell across the board on the 28th as investors reacted negatively to U.S. Treasury yields jumping to their highest levels in about 19 years—the Dow fell 0.67%, the S&P 500 0.77%, and the Nasdaq Composite 0.92%. The 10-year yield briefly hit 5.27%, its highest since 2007, while the 30-year yield reached around 5.55%, its highest since 2004, leading to larger declines in indices with higher tech weightings. Boeing also significantly dragged down the Dow, plunging nearly 7% after the FAA deferred its type certification.
The single driver of rising interest rates simultaneously triggered a sharp drop in AI-related stocks and a shift of funds into defensive stocks. Meta Platforms fell 4.8%, marking its worst day in the last month (reflecting profit-taking after the surge following the announcement of its new AI agent, “Muse”), while Nvidia rallied 1.7% after announcing an additional $150 billion in share buyback authorization, bringing the total to $235 billion. The contrast between companies with strong cash flow and those sensitive to rising capital costs is becoming increasingly clear.
In Asia, mainland Chinese stocks plunged (Shenzhen -3.44%) due to slowing industrial profits and concerns over an AI-skewed economic structure, while Hong Kong and Singapore remained resilient. In Japan, the yen briefly rebounded to the 156 range following comments from Vice Minister of Finance Atsushi Mimura warning against yen depreciation, but it later lost momentum as dollar buying driven by rising U.S. interest rates prevailed. Japan’s 2-year yield briefly approached 1.975%, a level not seen since 1995.

Overview: “Internal Selection within AI Stocks” Created by the Single Driver of Interest Rates

The key to understanding this market is that a single macro driver—rising interest rates—is rippling through equities, credit, and commodities while simultaneously creating clear selection within AI-related stocks. The contrasting movements of Meta and Nvidia are symbolic of this: even among stocks in the same AI theme, resilience to rising interest rates varies significantly based on cash flow strength and shareholder return policies like share buybacks. According to Deutsche Bank’s analysis, while large-cap growth and tech stocks have risen 14% since the end of July to reach record highs, the rest of the S&P 500 has fallen 3% in the same period—the tech-dominant structure persists, but its composition is no longer uniform.

At the same time, contradictory headlines regarding the situation in Iran, which reverse multiple times within a single day, are amplifying volatility in crude oil and the interest rates and stocks linked to it. Reports that President Trump rejected a proposal to reopen the Strait of Hormuz were immediately followed by news that he was prepared to offer sanctions relief if there was progress on the nuclear issue, only for that report to be denied as “baseless”—a situation where messages within the administration remain inconsistent. This combination of geopolitical uncertainty and rising interest rates explains the complexity of the current market.

Major Indices, Currencies, Interest Rates, and Commodities

Theme 1: Meta Down 4.8% vs. Nvidia Rallies—Clear Selection Within AI Stocks

The main theme of the day was the fragmentation of stock selection based on sensitivity to rising interest rates—as portfolio manager Justin Bergner points out, the market is increasingly aware of the “competition” between massive investments by AI hyperscalers and rising interest rates, creating an environment where growth-oriented tech stocks are prone to selling. AMD fell 3.6%, Micron Technology 2.6%, and Amazon and Microsoft also softened by around 1%. Meta Platforms fell 4.8%, marking its worst day in the last month. However, Meta’s decline is more about “profit-taking” than simple pessimism—the company surged nearly 13% last week following the announcement of its new AI agent “Muse,” and its gains since the start of September exceed 25%. It is a reaction to five consecutive weeks of gains.

In contrast, Nvidia rallied 1.7% against the trend—the company’s decision to add $150 billion to its share buyback authorization, bringing the total to $235 billion, was interpreted as a sign of CEO Jensen Huang’s confidence in sustainable growth. Even within the same AI theme, the pattern of reactions diverging between companies with strong cash flow and those sensitive to rising capital costs is likely to remain a focus. Deutsche Bank analyzes that while large-cap growth and tech stocks have risen 14% since the end of July to reach record highs, the rest of the S&P 500 has fallen 3% in the same period and has been sold off by 5.5% over the last five weeks—the view is that while relative outperformance is in the upper half of the long-term trend channel, it has not yet reached the ceiling. In terms of market breadth, only 3 stocks hit new highs compared to 28 hitting 52-week lows, and the S&P 500 as a whole has lost almost all of its September gains, returning to a level that is essentially flat for the month—however, it remains up over 2% for the quarter and over 12% year-to-date, meaning the medium-term uptrend itself has not collapsed.

In the credit market, AI-related financing is spreading to a wide range of sectors—Goldman Sachs points to deteriorating supply and demand in the U.S. high-yield bond market; as a result of a series of large AI-related issuances, such as SoftBank Group’s $10 billion bond, September issuance reached $38.5 billion, the most active month this year, and the yield spread between junk bonds and U.S. Treasuries widened to 294bp, the highest level since April. The average spread for CCC-rated bonds, which have the lowest creditworthiness, has widened to 968bp, reaching levels not seen since November 2023—AI-related bond issuance has reached approximately $600 billion year-to-date, and the fact that this spread is beginning to affect investment-grade bond spreads is a reason to look at the reactions of the credit market, not just the stock market, when evaluating the sustainability of the AI boom. JPMorgan’s trading desk has shifted its view from tactically neutral to bullish, pointing out that the stock market has not experienced a decline of more than 1% for over 40 trading days, indicating a stable environment—however, this calm also carries a fragility that could easily collapse if interest rate volatility increases further.

Theme 2: 10-Year Treasury at 2007 Highs, 30-Year at 2004 Highs—The Tug-of-War Between Flattening and the Iran Situation

The starting point for this stock market decline is undoubtedly the U.S. Treasury market—the benchmark 10-year yield rose to the 5.2% range, briefly hitting 5.27%. This is the highest level in about 19 years, since 2007. The 30-year yield also rose to around 5.55%, hitting its highest level since 2004. Short-term maturities have also generally risen, with **1-month at 3.95%, 3-month at 4.16%, 6-month at 4.40%, and 1-year at 4.54%**, reflecting the high policy rates as the entire yield curve shifts upward. Fed Governor Cook warned that while AI-driven productivity gains could be a disinflationary factor in the future, in the near term, the tightening of resource supply and demand for electricity and construction labor associated with AI infrastructure investment, as well as higher oil prices due to Middle East conflicts, will push inflation higher. The swap market is pricing in at least three, and possibly four, 0.25 percentage point rate hikes over the next year, with the probability of an October rate hike estimated at over 60% by the market.

From a medium-term perspective, the narrowing yield spread between 2-year and 10-year Treasuries, indicating a flattening yield curve, is important. If this spread narrows further and short-term rates exceed long-term rates, leading to an inverted yield curve, it has historically been a leading indicator of recession in past business cycles—though since the start of the 2020s, there have been cases where an inverted yield curve did not necessarily accompany a recession, so it is also possible to interpret this not as “doubt about the strength of the economy itself” but as a movement reflecting expectations of continued Fed rate hikes. Economist Mohamed El-Erian has expressed the view that even if the Middle East situation settles and oil prices ease, it is difficult to assume that yields will fall significantly below 5% due to structural factors such as the supply-demand imbalance for long-term bonds. The Treasury Department has appointed David Zervos, formerly of Jefferies, as an advisor under Secretary Bessent—he is a person who has supported Fed rate cuts and criticized former Chair Powell, giving the impression that the administration is strengthening its stance of demanding a more accommodative posture from the Fed.

In commodities, crude oil (WTI) rose 0.85% to $93.39—maintaining resilience against a backdrop of geopolitical risk. Oil prices spiked temporarily after reports that President Trump rejected Iran’s proposal to reopen the Strait of Hormuz, but gains were trimmed following news that Trump is prepared to ease sanctions or unfreeze assets if there is “concrete progress” on the nuclear issue—furthermore, Saudi Arabia announced the restoration of the East-West pipeline damaged in the attack also capped the upside. Gold and silver showed contrasting weakness, with gold falling 0.33% from the previous day to $4,154.6—the primary reason being that the combination of rising interest rates and a stronger dollar diminished the investment appeal of gold as a non-interest-bearing asset.

Theme 3: Mainland China Stock Plunge, Yen Weakness Curb, and Structural Problems of an AI-Skewed Economy

Asian markets saw a somewhat nervous performance as multiple burdens weighed on them—while mainland Chinese stocks fell sharply, with the Shanghai Composite down 1.67% and the Shenzhen Component down 3.44%, surrounding markets showed resilience, with the Hang Seng Index up 0.54% and the Singapore STI up 0.31%. The backdrop for the plunge in mainland stocks is that industrial profits in August rose 4.2% year-on-year, a significant slowdown from the 11.2% growth in July and missing the market expectation of 8% growth—the electronics industry accounted for nearly two-thirds of the profit growth from January to August, while the contribution of the raw materials industry was limited to 6.2 percentage points. While the global AI supercycle and rising commodity prices due to the Iran war have boosted profits for factories and mines, domestic demand remains sluggish, and consumption growth in August also slowed to near zero—this composition of “recovery dependent on AI and high resource prices” is putting stronger selling pressure on indices with a high proportion of growth tech stocks, such as the Shenzhen Index. The consumer goods sub-index of the MSCI China Index has fallen about 18% in the last six months, sinking to its lowest level in about 10 years, while the technology index, which has a high weighting of AI-related stocks, has risen to more than double its 2016 level—suggesting a structure where capital is concentrated in AI-related stocks while exiting sectors like consumption. The eight major Chinese technology stocks, the “China Tech 8,” are trading at a discount of over 50% compared to the US Magnificent 7, and the gap is the widest it has been this year.

In Japan, the 2-year government bond yield, which is sensitive to Bank of Japan monetary policy, rose to 1.975% at one point, approaching levels not seen since 1995. After the Bank of Japan decided to raise interest rates at its September meeting, Governor Ueda did not provide clear clues about the future pace of tightening, leading to growing concerns in the market about the BOJ being “behind the curve” in responding to inflation—in the overnight interest rate swap market, the probability of an interest rate hike in October is about 40%, and additional rate hikes by December are almost fully priced in. Former BOJ board member Kazuo Momma indicated that while the possibility of an October rate hike is “20 to 30 percent,” a December rate hike is “almost certain.” In the foreign exchange market, it was reported that Vice Minister of Finance for International Affairs Atsushi Mimura stated that the message that both the Japanese and US governments share the recognition that the yen is undervalued is “very clear,” and the yen rose to 156.51 yen, up 0.5% at one point, but subsequently, the trend of dollar buying against the backdrop of rising interest rates strengthened, erasing the gains. A Nomura currency strategist points out that the fact that Mimura, who had previously adopted a strategy of remaining silent, joined in verbal intervention itself suggests the possibility that authorities are preparing for actual market intervention.

Following the summit meeting between the US and China, a list of tariff reduction target items worth approximately $30 billion each was announced—the US side is targeting 77 items such as fireworks, household goods, and toys, while the Chinese side is targeting 1,619 items such as meat, grain, coal, and medical equipment, covering a total of $60 billion in trade. Sensitive areas of conflict such as semiconductor technology and AI remain unresolved, and China is strengthening its stance on preventing technology leaks, such as by expanding travel restrictions for AI talent to their families—for key talent in the AI field at private companies such as Alibaba and DeepSeek, spouses and children are now also required to obtain government approval before traveling. SoftBank Group realized a record-breaking junk bond issuance of $11.1 billion—the longest-dated 7.5-year bond was priced at a yield of 9.75%, offering equity-like returns despite a BB+ rating. A strategist at Resona Holdings points out that not only is there a worst-case scenario where the AI boom completely collapses, but if the expansion of upfront investment and delays in monetization continue, free cash flow will be squeezed, dependence on external funding will increase, and there is a risk that credit spreads will widen sharply if AI demand slows down.

Data Analysis: 10 Indicators to Watch

Indicator Content and Interpretation: Can rising interest rates and rising stock prices coexist? The key is the strength of growth. Relationship between interest rates and stock prices based on past patterns. Survey of 29 Fed officials, majority expect multiple rate hikes. Hawkish views spreading among officials. If rate hikes are skipped, it would be the biggest dovish surprise since 1994. Suggests that market pricing has already progressed significantly. September FOMC dot plot, split down the middle among members. Shows the depth of disagreement within the policy committee. US household assets, bias toward stocks approaching record levels. Increased sensitivity to the entire market caused by concentration of asset allocation. Stock performance on FOMC decision day hits highest level this year. Strength of market relief after passing the event. Stock market after the start of rate hikes, past lessons are “resilience.” Reference point for patterns of recovery after short-term adjustments. Capital return to tech has progressed, but has not yet reached the ceiling. Deutsche Bank analysis, view that there is still room for upside. Stock prices have risen and overvaluation has eased, S&P 500 earnings and valuation. Earnings growth contributes to valuation correction. Will the S&P 500 test 7,800 with support at 7,650? Year-end price range. Guide for technical range sentiment.

Points to Note

The contrasting price movements of Meta and Nvidia indicate that selection within AI-related stocks is progressing based on the strength of cash flow and shareholder return stances. Depending on future interest rate trends, these selection criteria may become even clearer.
The 10-year bond yield at its highest level since 2007 and the 30-year bond yield at its highest level since 2004 are accompanied by structural factors such as supply-demand imbalances in long-term bonds, and experts like El-Erian have pointed out the possibility that yields will not fall significantly even if the Middle East situation settles down.
In the credit market, CCC-rated spreads have widened to levels not seen since November 2023, and the risk that indigestion in AI-related debt will spill over into investment-grade bonds is an issue that should be watched closely in the medium term.
The sharp drop in mainland Chinese stocks reflects the structural problem of a “recovery dependent on AI and high resource prices,” and the weakness in domestic demand (August consumption growth near zero) is a phase where the effectiveness of government consumption stimulus measures will be tested.
Concerns about the BOJ being “behind the curve” and Vice Minister Mimura’s verbal intervention suggest that the yen exchange rate could fluctuate significantly depending on whether there are consecutive interest rate hikes at the October meeting. Caution regarding actual intervention by authorities also remains deep-seated.

Glossary

Behind the curve: A situation where a central bank’s policy response lags behind.
Dispersion trading: A trading strategy that focuses on the fact that the volatility of individual stocks is higher than the volatility of the index as a whole, and uses that difference as a source of profit.
Backwardation: A state where futures prices are higher for the nearest contract month and lower for more distant months. It is considered a signal indicating tight near-term supply and demand.
Flattening (Yield Curve): A phenomenon where the rise in long-term interest rates is smaller than that of short-term interest rates, causing the slope of the yield curve to become shallower.

Future Scenarios (Next Business Day and Beyond)

Scenario Content Bullish Factors S&P 500 earnings growth contributing to valuation correction, room for further upside as capital returns to tech, stable market environment with no drops of over 1% for over 40 trading days, historical lessons on the ‘resilience’ of the stock market after rate hikes begin, Nvidia’s expanded buybacks signaling confidence in sustainable growth Cautious Factors 10-year Treasury at levels not seen since 2007 and 30-year Treasury at levels not seen since 2004, widening of CCC-rated credit spreads (levels not seen since November 2023), concerns over the AI-heavy economic structure of mainland Chinese stocks, risk of unwinding dispersion trades, yen depreciation pressure due to concerns over the Bank of Japan being ‘behind the curve’ Notable Events This week’s PCE and employment-related indicators, October BOJ meeting (approx. 40% probability of rate hike), progress in Strait of Hormuz negotiations, tensions surrounding the administration’s and the Fed’s monetary policy stances, digestion status of AI-related debt such as SoftBank Group

Summary

The central theme running through the U.S. market on this day boils down to how the macro driver of rising interest rates ripples through equities, credit, and commodities. In the short term, the inconsistency of headlines surrounding the situation in Iran is likely to amplify volatility in oil and interest rates, and the next focus will be on whether the Personal Consumption Expenditures (PCE) and employment-related indicators released this week will strengthen expectations for additional rate hikes.

In the medium term, it is necessary to determine whether the process of the yield curve approaching an inversion will begin to be perceived as a signal of economic slowdown, or whether it will be digested as part of the monetary tightening process. Regarding the AI theme, whether the selection between companies with strong balance sheets and those vulnerable to rising capital costs will progress further, and whether the indigestion of AI-related debt in the credit market will spill over into investment-grade bonds, could be key variables that influence the overall sentiment of the stock market. The tug-of-war between the sharp drop in gold and silver, the strong dollar, and statements checking yen depreciation is also expected to remain prone to fluctuations depending on interest rate trends.

Disclaimer

This article is for informational purposes only and does not recommend the buying or selling of any specific financial product. While every effort has been made to ensure the accuracy of the content, it is not guaranteed. Please make final investment decisions at your own risk. Investing in financial products involves the risk of losing principal.