Bond Yields Hit 2007 Highs, Costco Cashes In on Inflation

Zaid Admani (0:00)

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Friday, September 25th. In today's episode, we'll talk about why bond yields are at levels we haven't seen since the financial crisis, and why AI might be making it worse. We'll also recap Costco earnings, and why inflation might be helping them. Then stick around to the end of the show to find out about a new feature on public that could change the way that you invest. We got a great show for you today.

Let's go.

Yesterday was kind of a quiet day for the stock market. The S&P 500 was basically flat, down just 0.02%.

The NASDAQ was up just 0.01%. So not a ton of movement in the stock market. Bonds on the other hand though, they kept selling off. The 10-year treasury yield climbed to around 5.2% late Thursday as the highest level since June of 2007, which was right before the financial crisis. The 30-year hit about 5.5% and even the five-year crossed 5% for the first time since 2007 Now, as we've talked about in the last few weeks, there are many reasons why yields have been surging. Lately though, the oil market has had the most influence on yields. The Wall Street Journal pointed out that the daily link between the 10-year treasury yield and oil prices is the tightest it's been on record. That means on the days that oil prices drop, yields also drop, and then on the days that oil goes up, yields tend to go up as well. Now, speaking of oil, there's big development on that front this morning. According to multiple reports, the US and Iranian negotiators are exploring a phase deal where Iran would reopen the Strait of Hormuz within seven days if the US meets Iran's conditions, like lifting their naval blockade of Iranian ports and unfreezing Iranian assets and ending the war on all fronts. The conditions that Iran wants are very similar to what was agreed to back in the June ceasefire, but that deal fell apart, so we'll see what happens from here. The market seems to be hopeful, though. Oil prices are moving a bit lower this morning on this news. Now, the other big macro news this week was President Trump's meeting with Chinese President Xi at the White House yesterday. And Iran was one of the issues that they discussed. President Trump has been trying to get China involved in bringing Iran back to the negotiation table. On top of that, the US and China also agreed to extend their existing trade truce by another two months, pushing the deadline to January 10th. I'll be honest with you guys, I kind of forgot about this trade truce, and I wouldn't be surprised if it gets extended again. Big picture, though, if we actually get progress with Iran and the Strait of Hormuz reopens, that could take some pressure off oil prices and potentially the bond market too. But you know, there are bond investors that think this is bigger than oil and that AI is playing a role here. AI is one of the biggest reasons that stocks are near record highs right now. And it also may be one of the reasons why bond yields keep climbing. The same AI spending boom supporting the stock market is also keeping the economy hot as well. And you know, these AI companies are spending billions of dollars and selling a ton of bonds to pay for it, which competes with the US Treasuries for investor money, and that's pushing up yields as well. And by the way, higher rates probably won't slow down AI spending very much, because if you're a giant tech company and you think a data center could generate huge returns in the future, a 5% Treasury yield probably isn't going to make you cancel your project. And that's going to put the Fed in a very tough spot because if AI spending refuses to slow down, well, the Fed's going to have to put even more pressure on everything else to slow the economy to get inflation under control. And that's why a lot of people think bond yields could keep rising. According to a Bloomberg survey this week, more than half the respondents said the 30-year treasury yield is going to hit 6% by the end of the year. We haven't seen levels that high since the.com bubble burst 25 plus years ago. So yeah, I think it's possible the bond market continues to be the main character for the rest of the year. So you know, it's funny, I went from pretty much never talking about the bond market on this show because it's usually very boring to talking about the bond market pretty much every day. Maybe once earning season starts in a couple of weeks, we can focus on that instead of what yields are doing. Either way though, we'll keep an eye on all of it. So definitely get subscribed to the podcast if you haven't already and tune in every day to stay in the loop.