The Curve Breaks to a 2007 High and SoftBank Sells the Largest Junk Deal on Record Anyway. October Hike Odds Are Now Three in Four.

Thursday, September 24, 2026, written at 9:25 a.m. Eastern, thirty five minutes before the open. Futures and pre-market levels below are indicative and can move before the bell. Tokyo reopened overnight after four sessions shut. Seoul is closed for Chuseok and does not trade again until Monday the 28th, so the two Asian markets that matter most to this cycle are split between a market catching up and a market absent.

The discount rate moved yesterday. Not the front end, which has been at a cycle high for a week, but the whole curve at once. S&P Global’s flash composite purchasing managers index printed 58.4, the strongest reading in more than five years, with services at 58.7 and manufacturing at 57.0 and the manufacturing number the best since May 2022. Governor Barr said further policy adjustments are likely to be needed. The five year yield rose about nineteen basis points to 5.03%, its highest since 2006. The ten year rose roughly fifteen to close above 5.11% and touched 5.135%, the highest since July 2007. The thirty year is at 5.44%. The two year added about twenty basis points to 4.91%. The October meeting went from roughly a coin toss on Tuesday to something close to three in four this morning, and John Williams said on the tape today that another increase this year is reasonable without committing to the date.

In the same twenty four hours SoftBank Group cleared $11.1bn of bonds, the largest high yield corporate bond sale ever recorded anywhere, taking the title from the $10.9bn a French telecom raised in 2014. Ten billion dollars of senior unsecured notes plus a billion euros, five tranches from three and a half to seven and a half years, and more than thirty billion dollars of orders against the dollar book at a reported 9.75% coupon. The proceeds fund the third and final ten billion dollar tranche of the thirty billion dollar follow on investment in OpenAI, which closes on October 1 and sits inside a total commitment of $64.6bn. Add the trillion yen retail issue earlier this month and the five year credit default swap through four hundred basis points and the January to September repricing of the 2031 dollar notes from 6.7% to about 8.2%.

Put those two paragraphs next to each other, because they are the same story from opposite ends. The bid for the artificial intelligence capital structure is intact. It is emphatically intact, because a three times oversubscribed order book for unsecured paper funding a levered stake in a single private company is not a market in retreat. What has changed is the price, and the price is now the whole argument. At 6.7% the marginal AI dollar was close to free against the return being underwritten. At 9.75%, against a risk free five year at 5.03%, the sponsor is paying roughly four hundred and seventy basis points of spread to hold an asset that pays the lender nothing until an exit that has no date. Across a $64.6bn commitment the difference between January’s funding cost and yesterday’s is on the order of two billion dollars a year of incremental carry. Equity investors are still treating this cycle as a demand question. Credit has started treating it as a financing question, and credit is the side that gets paid first.

The market reaction told you which side it believed. The S&P fell 0.75% to 7,706.03, the Nasdaq Composite fell 1.13% to 26,936.04 and gave back most of two record closes, the Dow fell 352 points to 51,511.59, and the Russell 2000 fell 1.77% to 2,838.67. Ten of eleven sectors finished lower. The exception was energy. The damage was concentrated exactly where a five and a quarter percent long end does its work, with biotech down 4.12%, gold miners down 4.36%, junior miners down 5.23%, and utilities and real estate the weakest of the large sectors on a pure dividend discount mechanism. That is the first session this month in which the rate move reached the equity market rather than being absorbed by it.

The Tape: The Hedge Bid Went to the Right Asset

Futures are lower again with the same internal split. S&P contracts are 7,730 and down 0.54%, Nasdaq 100 futures are 30,481 and down 0.92%, and Dow futures are 51,750 and higher by 0.24%. A Dow bid against a Nasdaq offer on the morning after a fifteen basis point move in the ten year is a rotation out of long duration cash flows, which is the correct trade and a late one.

The volatility complex is where the useful information sits. The VIX rose 6.8% to 15.18, which is nothing, and one day VIX rose 21.3% to 10.71, which is also nothing in level terms. The MOVE index, which prices Treasury volatility, rose 21.5% to 95.45. Skew is elevated at 146.15. So the market bought protection, correctly, in the asset class that actually moved. We spent two weeks in early September arguing that equity volatility was too cheap and we buried that call on September 19 after being wrong for a fortnight. The honest version of the same observation, which we should have written then, is that the risk was never in the equity index. It was in the curve, and rates volatility has now repriced by a fifth in a session while the VIX sits on a fifteen handle.

Jobless claims landed at 197,000 against a 201,000 consensus and a revised 198,000, the lowest since mid July, with the four week average down to 202,250 from 204,000. That is the last data point this argument needed. A composite survey at a five year high, a manufacturing survey at a four year high and layoffs at generational lows is not an economy that requires accommodation, and it removes the one objection a dissenter could have raised to an October move, which is labour market fragility. New home sales at ten o’clock and the Kansas City Fed survey at eleven are secondary. The forty four billion dollar seven year auction at one o’clock is not, because it is the first real test of demand for intermediate duration since the five year yield took out its 2006 high.

Rates: What Actually Repriced

Be precise about the shape, because it is not the same move as last week. From the hike on September 16 through Tuesday this was a bear flattening, with the front end charging for policy while the long end held or rallied. Yesterday it was the belly and the long end that led, with the five year up nineteen and the ten year up fifteen against about twenty on the two year. That is a market adding inflation risk premium and term premium back into the curve at the same time as it adds policy, which is a different and less comfortable animal than a front end repricing on its own.

The European leg deserves a line because it moved with it rather than against it. The German ten year rose nine basis points through 3.555%, and the spread of France over Germany widened to 110 basis points, the widest since 2012. A European sovereign spread at a fourteen year wide on a day when the driver is American growth data is not a French story with a German comparison. It is a global duration event with a local credit expression, and France is where the local credit is weakest after last week’s downgrade.

The dollar took the whole thing. The index traded to 101.231, its best since July 29 and up about two and a half percent from the September 9 low of 98.755. The euro touched 1.1369, sterling 1.3223 and the Australian dollar 0.7018. Gold went through $4,300 and is near $4,295, silver fell four percent, and bitcoin is $84,061 and down 2.7%. The reflexivity we flagged on the day of the hike is now in its sixth session and it has completed its circuit, from the front end to the currency to the metals and finally into the equity index itself. The one place it has not arrived is the yen, which squeezed to 158.40 and sits just short of its two hundred day moving average, with Japan’s finance minister noting that the principles governing coordinated intervention are still alive. That is a warning rather than an action, and the carry structure funding a large share of this buildout remains intact for a sixth session after a Bank of Japan hike.

Energy: The Ban Split the Crack Within a Day

Yesterday morning we argued that an American diesel export ban would lower the domestic crack, widen the international crack, and therefore fail at the only thing it is designed to do. We did not expect the market to run the experiment before lunch.

Reports that the White House had prepared a ninety day export ban took the American diesel crack down $12.70 to $97.85. In the same session the premium of European low sulphur diesel over Brent set a record near $95 a barrel. That is the mechanism, executed, in one direction each, inside a single trading day. Domestic product got cheaper because a million barrels a day of export demand was threatened with removal from the American system. International product got more expensive because the rest of the world was told the marginal supplier might stop supplying. No refining capacity was added and none was lost. The shortage simply moved to where it is harder for Washington to see and easier for everyone else to feel.

The administration is now visibly split on it. The President backed the idea on Monday, Secretary Bessent said on Tuesday the feasibility was being studied, and Energy Secretary Chris Wright said yesterday that the blunt tool of banning diesel exports definitely does not work. A White House official has disputed the accuracy of the ninety day plan report. Our expectation is unchanged and is now better supported, namely that what gets announced, if anything, will be conditional and partial rather than a full ban, because an administration with a cabinet officer publicly calling the instrument blunt is not about to use it whole.

The crude leg went the other way for a second session and the reason is geopolitical rather than physical. Brent settled near $103.08 after adding almost four percent, its first real gain in six sessions, and is $104.41 this morning. WTI is $93.06 and has traded near $93.96. That leaves the Brent premium to WTI at roughly eleven dollars, which is the widest expression of the export question available on a screen. American crude is being marked as a landlocked barrel and seaborne crude is being marked as a scarce one. Yahya Rahim Safavi, military adviser to Iran’s Supreme Leader, warned that the conflict could widen from the Gulf, Hormuz and the Red Sea into the Indian Ocean if the United States or Israel strikes again, and President Pezeshkian told the General Assembly that Iran will not permit freedom of navigation through the strait while sanctions remain. Both statements arrived two days after the first mediated American contact with Tehran since July. We conceded the crude leg outright yesterday after six losing sessions. Two sessions later it is back over a hundred dollars, and the lesson we take is not that the concession was wrong but that a crude price set by a naval standoff is a headline instrument in both directions and should not be carried as a view at all.

On the supply side nothing has improved. Half of Russia’s six largest diesel producing refineries have cut or halted output this month, and the International Energy Agency’s arithmetic is that a Russian refinery was hit on average once every three days through the first eight months of the year. The barrel is a political variable. The product is a physical shortage with a political overlay. We continue to prefer the second and we continue to size it small, because a trade whose price can move twelve dollars on an unconfirmed report is no longer a pure inventory trade.

Corporate: A Price War in Models, and the Float Arrives

Alphabet fell 3.80% and it is the most interesting equity story of the session. The stated reasons were Meta’s Muse agent passing 2.8m downloads in twelve days and, more importantly, price cuts on frontier models from both OpenAI and Anthropic landing shortly after Google introduced Gemini 3.8 Flash. Alphabet is guiding 2026 capital expenditure to between $195bn and $205bn. So the tape marked down the company spending two hundred billion dollars on capacity on the day its two closest competitors cut the price of the output that capacity produces.

We have applied a rule since September 12 that the tape pays the layer receiving the cheque and charges the layer writing it. Yesterday added a second edge to it that we had not written down. The layer writing the cheque is exposed not only to the size of the cheque but to price deflation in the product it buys the capacity to sell. Inference pricing has fallen repeatedly this year and each cut lands on a fixed asset base with a depreciation schedule already set. That is the first time this market has charged a hyperscaler for competitive pricing rather than for capital intensity, and it is a more durable bear case than the capex argument because it does not require demand to disappoint. It only requires the supply of frontier models to keep growing, which it is doing in public.

Meta went the other way, up 1.02%, after Connect. The company priced VR glasses at $1,299 and unveiled Muse Charm, a handheld the size of an AirPods case with a two inch touchscreen and built in 5G, shipping by December. The hardware is not the point and the December date is very tight. What Meta is doing is buying a distribution channel for an agent that Amazon has already blocked from its own store and that Google is now defending its search box against. On strategy this is coherent. On earnings it is another year of spending before it is another year of revenue.

The financing layer stayed busy underneath it all. JP Morgan took CoreWeave to Overweight with a $125 target and Nebius was raised to Outperform at $399, which is the sell side underwriting the neocloud model at exactly the moment the risk free five year cleared its 2006 high. Those two things are not consistent for very long.

Space produced the cleanest confirmation of something we flagged only yesterday. SpaceX fell about four percent to $148.36 into today’s lockup expiry, which frees roughly 328 million shares, and AST SpaceMobile fell six percent with it. We wrote yesterday that the risk we would actually underwrite in the artificial intelligence and frontier technology complex is not a demand disappointment but that the float grows faster than the buyer base. The first unlock of consequence arrived within a session and took four percent off the largest private name in the group. On the operating side the company stacked Starship and Super Heavy at Starbase for the vehicle’s first orbital attempt, a 407 foot stack that could fly as soon as September 28 on a ten hour mission deploying twenty six Version 3 Starlink satellites, subject to Federal Aviation Administration approval. A successful orbital flight and a 328 million share unlock in the same week is the whole investment case and the whole risk in five days.

Elsewhere, MGM Resorts fell after Barry Diller’s People Inc withdrew a $48.30 a share buyout proposal, Grail was halted after a Food and Drug Administration advisory panel endorsed its blood based cancer detection test by seven votes to two, Gossamer Bio filed its seralutinib application in pulmonary arterial hypertension, TransUnion’s chief financial officer Todd Cello is leaving after twenty nine years, Starboard Value is pressing Knife River on margins and strategic alternatives, and BitMEX shut permanently after eleven years.

Earnings: Nothing From the Complex That Matters, Again

Second consecutive session with no print from the accelerator, memory, optical, power or launch layers. What reported was a consumer and industrial tail, and the numbers are not the story.

Our take. The only line worth extracting is StitchFix, where revenue grew 4.2% while active clients fell 1.4%, which means the entire improvement came from spend per client rather than from customer acquisition. In a quarter with diesel at $6.52 a gallon that is a company monetising the customers it already has because new ones cost too much, and it is the same shape we have now seen from four consecutive weeks of rate sensitive consumer and construction prints.

The substance is tonight and next week. Costco and Darden report after the close, and Costco is the cleanest available read on whether a six dollar diesel pump price has reached the middle income basket, because its membership renewal rate and traffic are the two series in American retail least contaminated by promotion. Micron follows on September 30 into memory inventories under ten days and a Taoyuan strike vote scheduled for early October. We also need to correct yesterday’s calendar: we wrote that Jabil reports before the open today. It does not. Jabil reports on September 30, the same morning as Micron, which makes that a single session carrying the two hardest reads on the physical buildout anyone will get this quarter.

Asia and Europe

Tokyo reopened and caught up. The Nikkei is 65,513, higher by 495 points, having traded as high as about 65,675 in the session, which is a market marking four days of American and European tape in one go rather than expressing a view. The yen at 158.40 is the more informative Japanese number.

Seoul is shut for Chuseok until Monday. That matters more than a holiday normally would, because Korea is the market that prices the physical memory and foundry cycle with its own money, and it is absent for the four sessions in which the global cost of capital just reset. Whatever Korea thinks about a 5.03% five year yield, we do not find out until next week.

Hong Kong fell again to about 24,761 and Shanghai fell to 3,888, down roughly forty eight points. That is a third consecutive session of Chinese equities selling into the summit that is happening in Washington today. Bessent and He Lifeng agreed to extend the tariff truce that was due to expire in November through to January, which the tape has treated as the non event it is. A two month extension of a one year truce, announced as the principals sit down, is a placeholder that tells you the hard questions on rare earths and semiconductor export controls have not been answered.

Europe fell with everything else. The Stoxx 600 lost 0.44% to 639.93, the DAX 0.66% to 25,410.63 and the CAC 0.39% to 8,123.41, while the FTSE was effectively flat at 10,718 on its energy weighting. Allianz was the single largest drag at down four percent, with insurance and autos the worst sectors, which is precisely the pattern a nine basis point Bund move and a 110 basis point French spread produce. Germany’s own composite purchasing managers index rose to 53.8, an eleven month high, and the market ignored it, because a European growth improvement that arrives with a global duration selloff is not a reason to own European equities. Switzerland, Sweden and Norway decide policy this morning and the German IFO survey follows.

Geopolitics

The Iran war reaches day two hundred and eight with the fire pause in its fourteenth day, and the direction of travel reversed. Two days after mediated contact between American and Iranian officials at the General Assembly, Safavi threatened to extend the theatre into the Indian Ocean and Pezeshkian used his own General Assembly address to say freedom of navigation through Hormuz will not be permitted while sanctions stand. Crude added four percent on Wednesday and is higher again. The diplomacy has not collapsed and it has stopped being a reason to sell energy, which is the practical distinction.

Xi Jinping’s bilateral meeting with the President and the state dinner are today, the middle day of a three day state visit that began with a planeside greeting at Joint Base Andrews, the first time in eleven years an American president has met a foreign leader at the base. The agenda is tariffs, rare earths, artificial intelligence, Taiwan and the Iran war. China controls roughly seventy percent of global rare earth mining and about ninety percent of processing, and that single fact is why the meeting is in Washington. The truce extension to January is the deliverable already banked. Anything on export controls or rare earth licensing would be the real one, and Hong Kong’s three day fade says the market with the most direct exposure does not expect it.

Key Events Today and This Week

Accountability

The distillate call is confirmed and the confirmation was mechanical rather than rhetorical. Yesterday morning we wrote that a ban would lower the domestic crack and widen the international one. Inside the session the American crack fell $12.70 to $97.85 and the European premium to Brent set a record near $95. We will take that, and we will also note the limit of it: we described a policy consequence and the market priced a report of a policy that a cabinet secretary then called useless and a White House official disputed. Being right about the mechanism of an announcement that may never happen is a narrower win than it looks.

The float call worked inside one session and it is the one we are most pleased with. Yesterday we wrote that the risk we would underwrite in this complex is not demand but supply of paper. SpaceX fell four percent into a 328 million share unlock the following morning. One session is not a thesis and we said as much about Korea on Tuesday, so we will hold the same standard here and treat it as directionally supported rather than proven.

The volatility call is worth revisiting rather than reviving. We were wrong on equity volatility for two weeks and buried it on September 19. The MOVE index rising 21.5% to 95.45 while the VIX sat at 15.18 says the mispricing we were pointing at was real and we were pointing at the wrong asset class. That is a process error rather than a market error, and it is the more useful of the two to write down.

The crude concession needs marking two sessions after we made it. We gave up the crude leg outright yesterday with Brent at $98.99 and six losing sessions behind it. Brent is $104.41 today. We were early on the way in and late on the way out, which is the signature of trading a price set by naval movements and press conferences, and the correct conclusion is that we should not carry a directional crude view at all while the strait is the marginal input.

The reflexivity call is working in its sixth session and has now completed. We argued on the day of the hike that equities easing financial conditions would buy the next increase. October went from a coin toss to roughly three in four, the dollar is at a two month high, gold has broken $4,300 and the equity index finally paid for it yesterday. The call is closed. What replaces it is a harder question, which is whether a five and a quarter percent long end can coexist with a capital structure that just funded itself at 9.75%.