Inflation was supposed to be the bond market’s problem last week. Then the stock market changed the subject. The 10-year Treasury yield fell to 5.06% on Thursday — its lowest close in more than three weeks — as a deepening AI stock selloff sent investors fleeing into the safety of government bonds. It was a sharp reversal from Wednesday, when the yield had touched 5.33% on hot inflation data.
(Credits: GoldStone Financial Group)
Hot CPI, Then a Flight to Safety
The week started with September CPI accelerating to 3.7% from August’s 3.4%, above forecasts, as a fuel-price surge showed up in the consumer data, according to GoldStone Financial Group’s weekly market recap. The report should have been the week’s bond-market villain: CME FedWatch odds of an October rate hike spiked above 50%.
But Thursday’s equity rout rewrote the script. As AI-linked shares sold off hard, investors worldwide moved into government bonds, driving the 10-year yield down nearly 13 basis points in a single session. According to the recap, growth fear displaced inflation fear so decisively that even strong producer-price and retail-sales data couldn’t interrupt the bond rally: the broad bond index gained 0.9% on the week, long Treasuries rose 2.7%, and high-yield municipal bonds posted their best week of the year.
What Comes Next for Rates
By Friday, expectations had reset: October hike odds settled at just 17%, with an 89% probability of an increase at the December meeting, the recap notes. That leaves the Fed’s late-October gathering positioned as a hold with hawkish intentions.
The selloff’s deeper question is whether AI earnings can justify AI spending. Magnificent 7 earnings are projected to grow 33.2%, but excluding the two largest AI beneficiaries the figure drops to 7.5% — meaning the coming weeks of results will show whether the selling was a verdict on fundamentals or simply an unwinding of crowded positioning, GoldStone’s analysts write. This article reports market developments only and is not financial advice.
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Source: GoldStone Financial Group — read the full story there.
