By Mike Dolan
Oct 8 (Reuters) – Stock markets finally stalled on Wednesday and early Thursday as the bond crunch ground on, with the latest Federal Reserve minutes showing most policymakers in September saw more interest rate rises ahead.
Markets have scaled back the Fed tightening horizon a bit in recent weeks but still see three more hikes over the coming year, starting in December.
Reinforcing the message from the Fed minutes, Fed Governor Christopher Waller said on Thursday that additional rate hikes will likely be needed to lower inflation to the Fed’s 2% target – although he said there was “flexibility” about the pace.
There was some relief in bond land on Wednesday after the latest 10-year Treasury auction went off OK, but not before yields hit another 24-year high earlier in the day. There are 30-year bonds up for grabs later on Thursday too.
While Treasury Secretary Scott Bessent has downplayed the latest bond moves as global rather than US-specific, the so-called “term premium” in 10-year debt that accounts for investor uncertainty beyond Fed interest rates has risen again to its highest in 12 years.
Having set new records earlier in the week, Wall Street stocks pulled back on Wednesday, with the focus shifting to the upcoming earnings season and the latest round of circular financing in the AI world between chipmakers and their customers.
Reports overnight detailed the latest debt financing between Broadcom and OpenAI, following reports this week that SpaceX and Nvidia are arranging chip finance of up to $40 billion. Broadcom and Anthropic too are discussing debt financing on a similar scale.
The rise of debt in the AI buildout, and what appears to some like “vendor financing”, raises the stakes for earnings season updates on the durability of the boom.
Taiwan chip giant TSMC’s quarterly revenue once again beat lofty forecasts on Thursday, while South Korea’s Samsung underlined the scale of things there as it reported a more than 700% annual rise in operating profit.
Yet even that wasn’t enough for the market, which knocked Samsung shares down more than 1% on some indications that the pace of growth and chip price rises were set to cool.
Chart of the day
The so-called term premium on 10-year US Treasury yields, the added compensation for risk demanded by investors for holding the bond to maturity, rose this week to its highest level since 2014, according to the New York Fed’s model.
The climb in nominal Treasury borrowing rates to 24-year highs over recent months has mostly been attributed to a rethink of the Fed’s interest rate horizon, and this has been reflected in the rise of real inflation-adjusted yields. Long-term inflation expectations have remained relatively stable.
But the spike in the term premium reflects broader concerns about rising debt levels, political risks and the uncertainties surrounding government financing over the longer term.
Today’s events to watch
• US weekly jobless claims (8:30 a.m. EDT)
• US 30-year bond auction (1 p.m. EDT)
• Regional Fed presidents Neel Kashkari and Alberto Musalem speak
Before you head off, listen to the latest episode of the Morning Bid daily podcast, where we discuss the latest flurry of interconnected financing deals funding the AI buildout.
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