The Barbarians Have Entered the Gates

WEEK ENDING 10/09/2026

• • A somewhat quiet week in terms of economic releases
  • Diesel deal, too little, too late
  • The revenge fights continue
  • Beware of Greek Ambassadors seeking gifts
  • The barbarians have entered the gates

A CITY DIFFERENT TAKE

It was a fairly quiet week in terms of economic releases. The most interesting are as follows:

1. The minutes from the last Federal Reserve meeting were released.

   “Oct 7 (Reuters) - Federal Reserve meeting minutes from last month’s policy meeting noted some officials believe it’s time for the central bank to get ​ready for bond market stress…

   Officials also penciled in another rate increase by year’s end.” Trouble ahead, Trouble behind

2. 10-Year Treasury Auction Results:
   
   

   “1547 ET – Treasury yields fall from fresh intraday highs as an auction of $39 billion in 10-year notes clears at a yield of 5.300%, the highest in 26 years. Investors, however, show interest in the offer, driving yields down in secondary markets. Demand “was very strong and that’s the reason for yields pulling back,” Spartan’s Peter Cardillo says. Good Ten-Year Auction

3. 30-Year Treasury Auction Results:

   “Treasury yields are trading near session lows after a $22 billion auction of 30-year government bonds priced roughly in line with expectations.

   The auction was met with 'solid' demand, BMO Capital Markets wrote to clients. Yields, which rise when bond prices fall, had climbed earlier in the trading session but flipped lower as oil prices also fell.” Good 30-Year Treasury Auction

4. The U.S. consumers are frustrated by the cost-of-living
   
   “The University of Michigan’s consumer sentiment index fell to a reading of 46.3 in the first days of October from September’s 48.1, according to preliminary results released Friday.
   
   The third consecutive month of declines was driven by a steep drop in sentiment among lower-income consumers and those with smaller stock investments. These households tend to have fewer resources to weather increases in prices, said Joanne Hsu, director of surveys of consumers. Consumers are not happy.
   
   From a historical perspective, CDI calculates that this reading is 2.2 standard deviations below the long-term average for this time series, dating back to March of 2005. As the mid-term elections approach, under a month away, politicians should realize that even those members of the population in the lower economic strata vote!
   
   
5. Trump’s Diesel deal with Russia:

In what looks to us as a last-ditch effort to influence the affordability issue in the U.S. (rather than denying it), the President announced a diesel deal with Russia:

“President Trump said Friday his administration reached an agreement for Russia to supply hundreds of thousands of tons of diesel fuel, marking a major policy shift that eases pressure on Moscow over its war with Ukraine in hopes of lowering domestic fuel prices ahead of the midterm elections.

The move, which included suspending sanctions on Russian diesel exports for about six months, comes as Trump and the Republican Party are struggling to address voter worries over surging diesel and gasoline prices. “ Too Little, Too Late

This deal seems to be too little and too late to have an impact on the mid-term elections. Plus, it sends a signal to Ukraine and the rest of Europe. There is a technical term to describe what the President is doing to Ulraine, we often use it on the trading desk, alias, if we used it here, compliance would strike it.

 THE TREASURY MARKET

We had two Treasury auctions this week, and the results were viewed positively by market participants. The ten-year auction took place on Wednesday. At the close of business on Tuesday, the ten-year Treasury security yielded 5.28%. By the close of business on Wednesday, that yield was 5.29%. No major surprise gave market participants room to breathe calmly. The thirty-year auction was up next Thursday, Wednesday evening, the yield on the thirty-year Treasury bond closed at 5.67% (a high for the year). By the close of business on Thursday, that yield was lower by -0.07% to 5.60%, yield on that security was stable through Friday, closing the week out at 5.60%.

The slope of the Treasury yield curve as measured by the spread between 2- and 10-year maturities was flat for the week ending at 0.44%, versus last week’s close of 0.45%. Taxable bond funds continued to see investors pull cash out. As of 9/30/2026, bond funds lost $17 (B) in AUM.

Quality spreads were largely unchanged. The spread between the Bloomberg US Aaa AAA total return index (5.27%) and the Bloomberg UA Baa total return index (6.19%) was 0.92% at week’s end. This reading is still narrow by CDI’s calculations, with a standard deviation of -0.75. The spread using the Bloomberg US Corporate High Yield Index (8.24%) was +2.97%. This reading is still narrow by CDI’s calculations, with a standard deviation of -0.67.  

 THE MUNICIPAL MARKET

The municipal market matched the performance of the Treasury market over the last week. Treasury yields in 1.5, 10, 30-year maturities were mixed for the week. The yield change for those maturities was (+0.01%, -0.04%, -0.04%, and -0.03%). In the municipal market, the yield changes for those maturities were (-0.06%, -0.04%, +0.01%, and +0.03 %). On a ratio basis versus the Treasury market, AAA general obligation municipal bond yield is equal to or in excess of the after-tax breakeven ratio, but below their long-term averages as CDI calculates them.

Municipal bond funds saw investors pull $6.7 (B) out of them for the week ending 9/30/2026. In contrast, municipal bond ETF’s saw positive cash flow for the same period of $6.0 (B). The 2-10 spread for AAA general obligation bonds widened a little to 0.64% from 0.57%. This spread is historically narrow based on the CDI calculation. It is currently -1.12 standard deviations below the long-term average.

More from the little engine that couldn’t. On October 8, 2026, Bloomberg reported:

(Bloomberg) — Municipal bonds secured by assets earmarked for bankrupt Brightline’s planned expansion from Orlando to Tampa climbed to 11 cents, after falling to 5 cents Monday.

• An investor bought $5 million of the bonds with a 14% coupon, maturing in 2032
• The Florida private passenger railroad issued $1.2 billion of the unrated junior bonds in 2024 as part of a $4 billion refinancing.
• AAF Operations Holdings, a holding company obligated to pay the debt, didn’t file Chapter 11.
• A lien on design contracts, permits, and rights-of-way on the prospective route to Tampa backs the debt.
• First Eagle Investment Management is the largest holder of the bonds with about $336 million, according to data compiled by Bloomberg. Nuveen LLC is the second-biggest with about $304 million.
• Fortress Investment Group-backed Brightline Holdings LLC and some other parent entities of the private railroad currently running from Miami to Orlando filed for Chapter 11 on Sept. 24, after years of lower-than-expected revenue left it unable to repay billions borrowed to finance the private railroad.

The Brightline Project is the United States only privately owned, operated, and maintained intercity passenger rail system.

 THE CORPORATE MARKET

Corporate bond yields moved lower on the week, outperforming their Treasury equivalents. Investment-grade corporate yields were lower by 0.05% to 0.07%, depending on maturity.

 THIS WEEK IN WASHINGTON

Nature abhors a vacuum, and with both the House and Senate on recess, one would think this section of the Weekly Commentary would be dying for material, au contraire!

The revenge tour continues:

“The White House scheduled a closed-door hearing next month where Justice Department officials can question Federal Reserve governor Lisa Cook about mortgage-fraud allegations she has denied, as President Trump seeks to satisfy the Supreme Court’s conditions for firing her.” Is Cook cooked?

“Federal prosecutors have been presenting evidence to a grand jury in Washington, D.C., on whether former White House aide Cassidy Hutchinson may have lied to Congress in her testimony related to the Jan. 6, 2021, attack on the U.S. Capitol, two sources familiar with the matter told CBS News.” To bully or not to bully, that is the question, Mr. Blanche

Beware of Greek Ambassadors seeking gifts.

“Honey please I need you to get this done for me today,” texted Kimberly Guilfoyle, just before her confirmation hearing to become ambassador to Greece. She was texting with a donor, asking for $100,000 to pay her American Express bill. In exchange, she would be his “Trump ride or die, forever and ever,” according to former ally Eric Deters. Honey Don't

Special Training for the FBI:

The FBI is enlisting UFC trainers to teach special agents. We can see that martial arts training for agents is beneficial, but UFC trainers may not be the best source for it. 

“Director Kash Patel has launched a bid to bring in Dana White’s UFC trainers to teach special agents mixed martial arts techniques, according to a report.” Hulk Patel

The Barbarians have passed through the gates:

“The planned Dec. 3 execution of Nidal Hasan, a former officer who killed 13 people in a 2009 attack, has sparked a national debate after the Pentagon announced that his death by firing squad would be livestreamed. When asked about the livestream, President Trump told reporters Friday afternoon that his administration “is making a determination about that, but he will be killed.” Please say it ain't so

The punishment is not the question; the barbarity of a public execution is!

As the level of absurdity in these reports grows, we see an impact on Treasury rates. Since Treasury rates are the base rate for most cost of capital calculations in the fixed income market, it’s important. The theory behind the determinants of Treasury rates goes something like this, 

1) Time – the longer an investor ties up their money, the higher level of compensation they will demand.
2) Investors’ views of future inflation influence their determination of adequate compensation.
3) Lastly, but not limited to, how the investor views the issuer of the debt. How confident investors view the issuer’s ability to service their debt. This is important in the Treasury market given the degree of foreign ownership of Treasury debt. Foreign ownership of U.S. Treasury debt has been estimated at about 24% of the outstanding balances. Look at the problems France is having in the debt markets as a current example.

CONCLUSION

Volatile markets like these highlight risks investors often overlook. These risks (convexity and de minimus) don’t affect our taxable strategies much, but can play havoc in the municipal market. The rise in yield can cause callable bonds to increase their effective durations and negatively impact the securities’ future price performance if rates continue to rise. If you would like a full discussion of these risks, please feel free to reach out to Chris or Swets.

CDI continues to believe that this rise in rates is a buying opportunity, who doesn’t like buying stuff on sale? But as new risks emerge due to rising rates, investors must be aware of them.

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