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* FIEND'S SUPERBEAR MARKET REPORT *

* September 11, 2026 *

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* e-mail: fiendbear@fiendbear.com *

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

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Fiend Commentary
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Five Percent Without the Headline

Thursday may have been the day the bond market effectively reached 5%, even if the closing quotation did not quite get there.

The 10-year Treasury yield climbed to roughly 4.96% during regular trading and approached 4.98% later, leaving the psychologically important 5% level only a rounding error away. The 30-year is pressing toward 5.4%, territory not seen since 2007. Stocks fell, while gold, silver and Bitcoin were hit as traders raised the probability of a Fed rate increase next week to about 70%.

One historical correction is worth making before 5% becomes the headline: the 10-year itself briefly exceeded 5% in October 2023, so this would not be its first visit there since 2007. It is the 30-year Treasury that is now revisiting 2007-era yields. The distinction does not make the current move much more comforting.

Five percent has arrived in everything but the print.

PPI Didn't Give Warsh Much Help

August producer prices rose 0.4% for the month and 5.4% from a year earlier. The monthly increase matched expectations, so this was not an inflation shock. But neither was it the benign report the Fed probably would have preferred heading into Tuesday's meeting. Core final-demand prices excluding food, energy and trade services rose another 0.3%.

Energy was the obvious trouble spot. Final-demand energy prices rose 4.2% in August, reflecting the oil shock that has been building throughout the summer. The problem for the Fed is that September is already looking worse than August on that front.

Markets responded by pushing the probability of a quarter-point hike next week from the low 60s toward 70%. Gold fell more than 1%, silver nearly 5%, the dollar strengthened and Treasury yields surged.

Warsh has spent months telling investors inflation is still unacceptable.

The data are beginning to make it difficult for him to keep saying that without eventually doing something about it.

CPI Is Now the Last Escape Route

Friday morning's CPI report could still rescue the Fed from an extraordinarily uncomfortable decision.

Economists expect headline consumer prices to rise around 0.4% in August, with annual inflation near 3.4%. Core CPI is expected to rise approximately 0.2% for the month. Gasoline is expected to be one of the main contributors to the headline increase.

A downside surprise would be exactly what Warsh needs.

If core CPI comes in soft and headline inflation can be blamed largely on energy, the Fed can hold rates steady next week while repeating that inflation is moving gradually in the right direction. Warsh can remain verbally hawkish, preserve the possibility of a later hike and avoid taking the political and economic risk of tightening now.

It would be another WACO escape hatch.

But if CPI resembles PPI—nothing catastrophic, just stubbornly too high—the calculation becomes harder.

Employment was considerably stronger than feared last week. Producer inflation is running at 5.4%. Oil has exploded beyond $100. The 10-year is sitting at 5%. The Fed's inflation target remains 2%.

At that point, not hiking becomes a policy decision too.

Sometimes a Hold Is the Dovish Choice

The Fed may convince itself that leaving rates unchanged is neutral.

The bond market may disagree.

With inflation elevated and energy prices accelerating, holding the nominal funds rate steady causes the real policy rate to decline. The Fed can therefore ease monetary conditions in real terms without announcing a rate cut.

That is precisely what could trouble long-term bond holders.

A token 25-basis-point hike would hardly crush the economy. It would not solve the federal debt problem, restore cheap oil or bring inflation immediately back to 2%. But it would demonstrate that the Fed is willing to defend its inflation objective when the economic data justify doing so.

A hold after another firm CPI report would send a very different message:

The Fed talks tough until the moment arrives to act.

That is where the WACO joke becomes more than a joke.

Warsh Always Chickens Out would effectively become the bond market's working assumption.

And the bond market is already behaving as though it has doubts.

Treasury Bought Bonds. Yields Went Up Anyway.

The Treasury increased Thursday's long-maturity buyback to as much as $6 billion, triple the previous $2 billion ceiling. The operation was designed to improve liquidity in older 10-to-20-year securities, not officially to peg yields.

It did not impress traders.

Yields rose anyway.

Reuters described investors as "unconsoled" by the larger operation, noting that $6 billion is tiny compared with a Treasury market of roughly $32 trillion. Concerns over federal borrowing, inflation and the supply of long-dated debt overwhelmed whatever benefit the purchase provided.

That may be one of the most important developments of the week.

Washington has now increased buybacks and the 10-year has gone from roughly 4.6% to nearly 5%.

The bond market is effectively saying that the price needed to absorb this debt is higher than Washington would like.

If CPI is firm Friday and the Fed nevertheless holds next week, 5% could turn from resistance into support surprisingly quickly.

Oil Didn't Stop at $100

The inflation problem is also no longer theoretical.

Thursday brought another violent move in crude. Brent settled at $107.63 and WTI at $102.48, both up more than 6%, as attacks on tankers and continuing disruption around the Strait of Hormuz intensified.

Only a month ago, crude was trading in the $70s and markets repeatedly assumed another ceasefire would eventually restore something close to prewar conditions.

Instead, oil moved through $80, then $90, then $100.

There was no single panic day comparable with the beginning of the war. It was almost worse than that. The market slowly stopped believing the problem would disappear.

Roughly one-third of prewar Gulf oil exports remains missing despite tankers making so-called dark crossings with tracking equipment switched off. The physical market is adapting to the war, but at a considerably higher cost.

That is how a temporary energy shock becomes embedded inflation.

The Gas Pump Is Catching Up

Consumers are now beginning to see it directly.

AAA put the national average for regular gasoline at $4.28 Thursday, up 13 cents in only a week and more than a dollar above last year. California averaged about $5.90, while San Francisco was already above $6. Diesel is an even larger problem: the national average has crossed $6 for the first time, while California diesel is approaching $8.

Diesel matters far beyond what truck drivers pay at the pump. It affects trucking, agriculture, construction and virtually every product that eventually reaches a store shelf.

Oil inflation moves through the economy with a lag.

The Fed is therefore debating whether to hike based largely on inflation that measures what happened before Brent reached $107.

That should be uncomfortable.

If crude remains above $100 through September and October, the consumer inflation reports the Fed sees later this fall may look considerably worse than the ones it is debating today.

Waiting does not make that risk disappear.

Then There Is Washington

The political incentives point in exactly the opposite direction.

President Trump has repeatedly advocated lower interest rates, while the November 3 midterm elections are less than two months away. Reuters/Ipsos polling in late August put Trump's approval at 33%, with voter dissatisfaction centered partly on living costs and the Iran war. The same survey found Democratic voters reporting greater enthusiasm about the midterms than Republicans, 46% to 31%.

That makes gasoline approaching $6 in California and the national average moving above $4 politically significant regardless of party.

It also makes a Fed rate hike politically contentious.

The Federal Reserve is institutionally independent, and its mandate is employment and price stability rather than election outcomes. But nobody should pretend that Warsh is unaware of the reaction a rate increase would generate from the White House.

His problem is that bond traders are equally aware of it.

If investors conclude that political pressure makes Fed tightening effectively impossible before November, they can demand more inflation compensation at the long end.

The Fed avoids 25 basis points.

The bond market responds with 50.

That would be a terrible trade.

Europe Didn't Wait

There was an interesting comparison Thursday.

The European Central Bank raised its key rate from 2.25% to 2.50%, explicitly responding to the persistence of inflation and the renewed energy shock. The ECB also raised its inflation projections.

Europe faces many of the same problems as the United States: expensive energy, fragile growth and political pressure.

Yet the ECB decided the inflation risk justified a small increase.

Warsh may be staring at essentially the same decision next week.

A 25-basis-point hike would not constitute some Volcker-style tightening campaign. It would be largely symbolic.

But symbols occasionally matter.

At 4.96% on the 10-year, credibility may be one of those occasions.

Five Percent Is the Real Vote

Friday's CPI report now carries enormous weight.

A soft report gives Warsh cover to hold.

A hot report probably makes a hike extremely difficult to avoid.

But the most interesting result might be something in between: inflation roughly as expected, still far above target, with oil above $100 and employment holding together.

That leaves Warsh with no obvious excuse and no comfortable decision.

FedWatch says roughly 70% chance of a hike.

Economists surveyed by Reuters only days ago still mostly expected the Fed to remain on hold.

Someone is going to be wrong.

The bond market may already be casting the most important vote.

The 10-year Treasury is essentially at 5%.

The 30-year is closing in on 5.4%.

Oil is above $100.

Producer inflation is 5.4%.

And gasoline is rapidly becoming something voters notice every time they leave the house.

Warsh can probably survive another month of WACO jokes.

What the Fed cannot afford is for the bond market to conclude that chickening out is official policy.

If CPI stays firm Friday, a 25-basis-point hike may actually be the lesser evil.

And if the Fed still refuses to deliver one next week, 5% may turn out not to be resistance at all.

It may simply be the next floor.

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