*****************************************************************************

* FIEND'S SUPERBEAR MARKET REPORT *

* September 28, 2026 *

* *

* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

*****************************************************************************

Fiend Commentary
================

When Five Percent Becomes the Floor

For months, Wall Street worried about what would happen if the 10-year Treasury yield reached 5%.

We may have been asking the wrong question.

What happens if 5% becomes the floor?

The bond market stabilized briefly Friday after one of its worst stretches in years. Stocks also recovered, with the Dow gaining nearly 1% and both the S&P 500 and Nasdaq rising about half a percent.

It looked like a fairly ordinary Friday rebound.

Underneath, it wasn't particularly impressive.

On the NYSE, 1,526 stocks advanced against 1,212 decliners—positive, but hardly overwhelming for a rising market.

More troubling were the new lows.

Only 13 NYSE stocks made new 52-week highs.

317 made new lows.

The Nasdaq wasn't much healthier.

There were 96 new highs against 381 new lows.

So the market bounced.

The damage underneath it continued.

Five Percent Didn't Work

The bigger story remains bonds.

The 10-year Treasury finished Friday around 5.17% after briefly reaching 5.20% Thursday.

Overnight it pushed back toward 5.22%.

The 30-year moved above 5.5%, near its highest level since 2004.

Those numbers would have seemed almost unthinkable a few years ago.

Now they are beginning to look ordinary.

That is the unsettling part.

Financial markets spent much of 2025 and early 2026 discussing 5% on the 10-year as though it were some enormous barrier.

A line the bond market might test.

A yield that would finally attract buyers.

A level that would tighten financial conditions enough to stop the selloff.

We got there.

Then we went through it.

Then we came back.

Now we're above it again.

Perhaps 5% wasn't the ceiling.

Perhaps it was the introduction.

Where Are the Buyers?

Bond prices eventually become attractive enough to bring in buyers.

They always do.

A Treasury security is not a speculative technology stock.

At some yield, pension funds, insurance companies, foreign institutions and ordinary investors decide the return is attractive enough to lock up.

The question is where.

Apparently 5% wasn't enough.

Will 5.25% do it?

5.5%?

Six?

Nobody knows.

But the fact that the 30-year is already above 5.5% tells us investors want a substantial premium before agreeing to lend money for three decades.

Why wouldn't they?

Thirty years is a long time.

Think about everything a bondholder has to accept.

Inflation risk.

Fiscal deficits.

Political uncertainty.

Currency risk.

Future Treasury issuance.

Changes in Fed policy.

And the possibility that whatever looks like an attractive yield today becomes inadequate five years from now.

A 5.5% coupon may sound terrific.

It sounds considerably less terrific if inflation settles permanently around 4%.

The Real Return Is What Matters

This is ultimately what bond investors care about.

Not the number printed on the yield.

What is left after inflation?

At 2% inflation, a 5.2% Treasury yield provides a very attractive real return.

At 3.4%, considerably less.

At 4%, less again.

And that assumes inflation stays there.

Oil is back above $100.

Diesel prices are at records.

Import prices have risen sharply.

Business surveys are showing increased input costs.

Those pressures don't guarantee CPI keeps climbing.

But they provide bond investors very little reason to assume inflation is headed peacefully back toward 2%.

That uncertainty requires compensation.

In the bond market, compensation means yield.

A Short-Term Bottom Has to Come Eventually

None of this means Treasury yields rise every day.

Quite the opposite.

The move has become extremely stretched.

Markets don't travel in straight lines, and after a bond selloff of this magnitude some kind of relief rally would be entirely normal.

A weak employment report could do it.

A softer inflation number could do it.

A meaningful drop in oil could do it.

So could simple exhaustion.

Everyone who wanted to sell eventually sells.

Short sellers take profits.

Yield buyers arrive.

Then bonds rally and yields fall.

The 10-year could easily move back below 5% during such a correction.

That would not necessarily mean the bond bear market had ended.

The more important question is what happens after the rally.

Does the 10-year return toward 4.5%?

Or does it fall to 4.95%, find no additional buying, and begin climbing again?

That is how 5% could gradually transform from resistance into support.

Markets do this all the time.

Yesterday's ceiling becomes tomorrow's floor.

The Trend Has Been Remarkably Persistent

The current bond decline didn't begin last Wednesday.

The 10-year has now risen in 10 of the past 13 weeks.

That is a trend.

The two-year has risen for six consecutive weeks.

The 30-year has added roughly a quarter percentage point during September alone.

And the move is not confined to the United States.

Government yields have been moving higher across much of the developed world.

That suggests something broader than one badly received Treasury auction or one hot PMI report.

The global cost of capital appears to be repricing.

Investors spent more than a decade becoming accustomed to extraordinarily low interest rates.

Perhaps that period was the anomaly.

Not this one.

The Fed Is Chasing Again

Kevin Warsh finally raised rates earlier this month.

Twenty-five basis points.

The bond market has since moved long-term yields by considerably more.

That is becoming a recurring problem for the Fed.

It moves carefully.

The market doesn't.

Inflation accelerates gradually.

The Fed waits for confirmation.

Oil rises.

The Fed studies it.

Bond yields jump.

The Fed talks.

Eventually the evidence becomes overwhelming enough that WUCO has to act.

Then comes another quarter point.

By the time monetary policy catches up with today's problem, markets may already be pricing tomorrow's.

That is reactive central banking.

And reactive central banking works particularly poorly when policy operates with long delays.

September's rate hike will take months to work through the economy.

The bond market reprices in seconds.

Seventy Percent—And Still Hard to Believe

Markets now put the probability of another 25-basis-point increase in October near 70%.

That is substantially higher than a week ago.

Yet it still feels difficult to believe Warsh wants to go again so quickly.

The September hike required almost overwhelming evidence.

Markets eventually priced the probability near certainty.

The 10-year had already crossed 5%.

Inflation remained elevated.

Several Fed officials openly supported tightening.

Only then did Warsh move.

October may require the same treatment.

Give WUCO an excuse to wait and there is a good chance he uses it.

A softer employment report.

A temporary decline in oil.

One tolerable inflation reading.

Any of those could support an argument for patience.

But the bond market may not be interested in patience anymore.

That's the problem.

The Week Could Decide It

Warsh is about to get considerably more information.

This week's economic calendar includes inflation, manufacturing and employment data, culminating with Friday's September payroll report.

Economists currently expect around 85,000 new jobs, with unemployment holding around 4.1%.

Those numbers could change the entire conversation.

Suppose payrolls come in weak.

The bond market finally gets its excuse to rally.

October hike expectations fall.

WUCO breathes easier.

Now consider the opposite.

Employment remains strong.

Inflation stays elevated.

Oil remains above $100.

The 10-year stays above 5.2%.

Then exactly what is the argument for waiting?

At some point, "data dependent" starts meaning the data actually requires a decision.

Gold Is Feeling Five Percent

The higher-yield environment is finally putting noticeable pressure on other alternative assets.

Gold is weakening again overnight.

Silver is falling even harder.

Bitcoin has also lost momentum after last week's surge.

Gold is particularly interesting.

It has held up remarkably well considering how violently real and nominal yields have moved higher this year.

But there is eventually a price for owning something that pays no interest when the U.S. government offers more than 5%.

Overnight gold fell another 2% and moved toward $4,200.

Silver dropped more than 4%.

That doesn't mean the precious-metals bull market is over.

It means the competition has become considerably tougher.

A 5.2% Treasury yield is real competition for almost every asset on earth.

Stocks Haven't Had to Choose Yet

Stocks have been remarkably resistant to the bond rout.

Friday's rebound continued that pattern.

The reason isn't difficult to understand.

Economic growth remains strong enough to support corporate earnings.

AI investment continues.

The largest technology companies generate extraordinary cash flow.

As long as earnings keep growing, investors can justify paying high valuations.

But there is a number somewhere where bonds begin winning the argument.

At 3%, Treasuries weren't much competition.

At 4%, investors noticed.

At 5%, they are difficult to ignore.

At 6%, the calculation changes again.

Why accept a 3% earnings yield from an expensive stock when Uncle Sam pays 6%?

There are answers.

Stocks provide growth.

Profits can increase.

Inflation can increase nominal earnings.

Technology companies can compound for decades.

But every additional percentage point in bond yields raises the hurdle.

That may help explain what is happening underneath the indexes already.

The giants can still clear that hurdle.

Hundreds of smaller stocks apparently cannot.

The Rally Is Becoming More Expensive to Maintain

That is why breadth matters so much now.

Friday was an up day.

Yet hundreds of stocks still made new lows.

This has happened repeatedly throughout September.

The index recovers.

The leaders recover.

The financial television screen turns green.

But another group of companies quietly breaks down underneath.

Eventually one of two things has to happen.

Breadth improves and the rest of the market catches up.

Or the leaders eventually catch down.

Markets can remain narrow much longer than most people expect.

But increasingly narrow leadership makes the entire structure more dependent on fewer companies continuing to perform perfectly.

Meanwhile the discount rate used to value those future earnings keeps rising.

That is an uncomfortable combination.

Five and a Half Percent for Thirty Years

The 30-year Treasury may ultimately be the number worth watching most closely.

Above 5.5%, the government is offering investors more than five and a half cents every year for three decades in exchange for borrowing a dollar today.

Multiply that across trillions of dollars of refinancing and the implications become enormous.

Not immediately.

Gradually.

Old low-rate debt matures.

New high-rate debt replaces it.

Interest expense rises.

The deficit gets larger.

More debt has to be sold.

The market demands a larger premium.

That is the feedback loop we have discussed before.

It doesn't have to produce a fiscal crisis.

It simply makes lowering long-term yields increasingly difficult.

The Fed can cut the overnight rate someday.

It cannot force somebody to buy a 30-year Treasury at 3%.

Maybe This Is the New Normal

That is the possibility markets may finally be confronting.

For more than a decade, investors treated 2% and 3% Treasury yields as normal.

History suggests they weren't.

They were products of unusually low inflation, enormous central-bank balance sheets, global savings, aging populations and repeated economic crises that pushed money into government debt.

The pandemic may have ended that era.

If inflation now runs structurally closer to 3% than 2%...

If government deficits remain huge...

If Treasury issuance remains enormous...

If AI requires unprecedented amounts of capital...

And if central banks are no longer willing to suppress long-term rates through giant QE programs...

then perhaps a 5% 10-year Treasury isn't a crisis level.

Perhaps it is simply the price required to clear the market.

That would represent an enormous change in the financial world.

Housing hasn't fully adjusted to it.

Commercial real estate hasn't fully adjusted.

Government finances haven't fully adjusted.

Stock valuations probably haven't either.

Adjustment takes time.

The Number Has Changed

For months, FiendBear watched 5%.

Would the 10-year reach it?

Would something break?

Would the Fed respond?

Would investors rush in to buy?

We have our answer to at least one question.

The market reached 5%.

Then kept going.

Now the 10-year is near 5.2%.

The 30-year is above 5.5%.

October hike odds are around 70%.

Oil remains elevated.

And despite Friday's stock rebound, hundreds of stocks continue making new lows.

Somewhere ahead, bonds will undoubtedly stage a rally.

Perhaps a sharp one.

But the secular question is becoming harder to ignore.

The 40-year bond bull market ended when yields collapsed in 2020.

What followed may not be a temporary normalization before we return to the old world of cheap money.

We may already be several years into the new one.

In the old world, 5% was the nightmare.

In the new one, it may turn out to be the floor.

---

Weekly Market Summary Page
[Return to the Fiend's SuperBear Page]