US Indices Shrug Off Higher Yields

For the week ending 9 October 2026

As of midday Friday, global equities were modestly higher on the week after the S&P 500 and NASDAQ reached all-time highs on Tuesday. The yield on the US 10-year Treasury note was little changed at 5.25%, while the price of a barrel of West Texas Intermediate crude oil rose $1.50 to $91.00. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), was steady at 17.3.

MACRO NEWS

Treasury yields remain elevated

US Treasury yields remained under upward pressure as investors weighed persistent inflation risks and firm economic momentum. Early in the week, Treasury Secretary Scott Bessent sought to calm markets, saying the rise in US yields was in line with global trends and did not warrant alarm. This week’s auctions of long-term Treasuries were bright spots amid solid demand for 10- and 30-year issues.

Minutes from September’s Federal Open Market Committee meeting showed that most participants believed another 25-basis-point rate increase would likely be appropriate this year. Several members said inflation risks had shifted further to the upside, while some viewed the current policy rate as only mildly restrictive. Governor Christopher Waller also signaled that more rate increases may be needed, though he left open the possibility of a pause in October. Markets will focus heavily on next Wednesday’s Consumer Price Index data.

Economic activity remains firm as consumers keep spending

Business surveys continue to point to healthy global growth. The JPMorgan global composite purchasing managers’ index rose to 54.3 in September from 53.5 the month before. Activity improved in the eurozone and China, while the US surveys showed continued expansion without a clear acceleration to a far-above-trend pace.

In the US, a sturdy labor market and higher household wealth have helped support demand, particularly among homeowners and investors who have benefited from rising asset prices. This resilience may keep inflation pressures elevated and could require interest rates to remain higher for longer.

Trump rules out renewing Iran attacks before the midterms

The Atlantic reported Wednesday that the White House has ordered the Pentagon to develop strike options against Iran and that attacks could come before the US midterm elections in early November. On Thursday, however, President Trump ruled out such a move, saying the US is having “productive discussions” with Iran.

For its part, Iran increased attacks on tankers in the Strait of Hormuz and even attacked one deep inside the Persian Gulf for the first time in a month. However, Qatar has moved empty liquefied natural gas tankers into the Gulf, suggesting that exports may increase despite the security risks. The US warned banks this week that they could face sanctions for conducting business with Iran.

Houthi forces struck Saudi Arabian targets again this week, including an Aramco facility in Riyadh, while a Saudi-led coalition recaptured several areas near the Bab el-Mandeb Strait. Axios reported Thursday that Saudi Arabia and Syria are discussing sending Syrian troops to Yemen to join the counteroffensive against the Houthi rebels.

QUICK HITS

Brazilian assets rallied after Flávio Bolsonaro led President Luiz Inácio Lula da Silva 47% to 45% in the first round of the presidential election, making him a heavy favorite to win the final-round vote in late October. The Bovespa Index gained 7.7% on Monday, its largest increase since 2020, as investors anticipated a continued rightward shift in Latin American politics and the potential for market-friendly reforms.

As Q3 earnings season gets underway, FactSet data shows that a record 116 companies in the S&P 500 Index issued positive Q3 EPS guidance.

US offshore oil production in parts of the Gulf of Mexico shut down late this week as Hurricane Isaias approached, contributing to firmer crude prices. Refinery output along the Gulf coast could be impacted as well, exacerbating the already-tight gasoline and diesel markets.

The US government recorded a $2 trillion budget deficit in fiscal 2026, $218 million more than in 2025. Congressional Budget Office Director Phillip Swagel said the US would need to grow at least 5% annually — assuming an interest-rate level of 4% — to stabilize the federal debt levels.

The US trade deficit widened by $12.7 billion to $105.6 billion in August. Record capital-goods imports, including AI-related equipment, drove the increase.

Canada lost a over 68,000 jobs in September, driving the nation’s unemployment rate up to 6.5%. It was the second month in a row of job losses.

One-year US inflation expectations rose to 3.9% in September from 3.6%, according to the New York Fed. Three-year expectations increased 0.1% to 3.3%, while five-year expectations held steady at 3.0%.

This week, investment-grade US corporate bonds yielded more than 6% for the first time since 2023. In leveraged credit, the value of loans trading below 60 cents on the dollar rose to $65 billion, the highest level since March 2020. Technology, particularly software, accounted for the largest share of distressed loans.

The Reserve Bank of India raised its policy rate by 25 basis points to 5.5%, its first increase since 2023. The central bank cited faster inflation, higher energy prices, and strong economic growth.

The Bank of Japan is considering concluding that underlying inflation has reached about 2%. Additionally, Prime Minister Sanae Takaichi said Japan no longer needs policies designed to stimulate inflation because the economy is no longer in deflation.

Amid increased scrutiny over its fiscal outlook, soaring French yields have caught the attention of the European Central Bank. On Thursday, ECB President Christine Lagarde said, without commenting on individual countries, that the central bank is attentive to markets and that it has the tools to counter unwarranted, disruptive market dynamics.  

President Trump signed an executive order allows the use of untaxed diesel fuel on the nation’s roads through the end of 2026.

France said it would release 10 million barrels of diesel from its reserves.

Germany and France proposed making it easier for the European Union to restrict Chinese products. China urged both governments to oppose greater trade protections and separately rejected calls for limits on hybrid vehicle exports. On Friday, Chinese officials said that they had reached an understanding with the EU regarding hybrids.

Spanish Prime Minister Pedro Sánchez called an early election for November 29 following nationwide protests over the housing crisis.

Voters in Quebec elected the separatist Parti Québécois, who now have enough seats to form a minority government, raising the prospect of increased tension with Canada’s federal government and a future independence referendum for the province.

The White House launched a Super Intelligence Force led by the director of national intelligence to assess AI risks and support US leadership in the technology.

The Federal Reserve said it will soon propose higher bank asset thresholds for stricter supervision. Separately, the New York Fed has been meeting with large banks to assess private credit exposures, collateral quality, and risk management.

THE WEEK AHEAD

Monday: US bond markets closed for Columbus Day

Tuesday: US existing home sales

Wednesday: US CPI, Fed Beige Book

Thursday: Japan industrial production; UK GDP, industrial production; eurozone industrial production; US retail sales, PPI

Friday: eurozone CPI; US industrial production