AFS Markets Blog: Midday 10/09/2026

• Meanwhile in markets, with the energy rally refusing to lose its stamina, bonds continue to give up ground. Brent crude is trading at $102 a barrel at pixel time, with European natgas prices at a new war high of €81 per MWh;

• US Treasury yields are up 2–3bps this morning, with the biggest moves at the long end. It is not just down to rising energy prices. Treasuries certainly weren’t helped by the fact that the house – as Treasury Secretary Bessent calls himself – failed to impress punters with the size of his long-end buyback yesterday. Punters have now called Bessent’s intervention bluff, sending the 30-year US Treasury yield to within 2bps of its August highs, a level not seen since 2007;

• In our neck of the woods, Bund yields are up a basis point or so across the curve this morning. That puts the 2-year at its highest level since 2024 and the 30-year at its highest since 2011. We also clock the French OAT-Bund spread at 90 bps – its widest level since the Eurozone crisis – driven by ongoing electoral and budget drama;

• Moving on to equities, the Stoxx 50 is down marginally this morning, while S&P 500 futures are ticking slightly higher. Both indices have lost ground recently, with the Stoxx 50 dropping percent and the S&P 500 shedding two percent from their August all-time highs;

• Let’s shift attention to the AI trade for a second. Our own AI index is up six percent over the past week, reaching its highest level since early July and moving back above all its major daily moving averages. The index contains a combination of major hyperscalers and semiconductor names, with the latest rally being driven by firms in the latter segment. Hyperscalers, on the other hand, have had a more mixed performance over the past week – and have underperformed chip producers on a monthly and year-to-date-basis. While Oracle and Meta are up this week, other names are sitting on low single-digit losses;

• The returning momentum behind the AI trade is not just an equities story – in credit we can see this as well. Five-year USD corporate bonds of firms operating across the AI ecosystem – that includes hyperscalers – have outperformed both US Treasuries and the broader IG corporate bond market by a handful of basis points over the past week. While the recent tightening only puts a small dent in the sector’s underperformance in 2026, sentiment around the AI trade is undeniably rebounding;

• The only notable laggards in the bond market over the past week were memory chip giants SK Hynix and Micron, which have moved in lockstep with Treasuries. However, it is worth noting that both already trade quite tight for their credit ratings relative to other semiconductor firms, and the bonds have actually outperformed the broader corporate bond market in 2026;

• Over in the Middle East, all eyes are on Yemen. Reports indicate that the Iran-aligned Houthi rebels have captured a sizable strip of territory since the resurgence in fighting with troops of the internationally backed Yemeni government over the past week. The Houthis already control most of Yemen’s Red Sea coastline, and they are now within 80 kilometers of capturing the remainder. Doing so would place them directly at the narrowest choke point of the Bab el-Mandeb Strait. The threat of a dual-strait shutdown is undoubtedly setting off alarm bells from Washington to Riyadh – the latter is already actively using airstrikes to support Yemeni government troops. Recent Bloomberg data shows that 10 to 15 tankers still transit the Bab el-Mandeb daily – a flow that will only become easier for the Houthis to cut off should they continue to gain ground;

• Turning to some broader market commentary, the broad dollar is holding steady throughout the morning. Meanwhile, EURCHF has risen to 0.943 – putting it within touching distance of the highest level seen since President Trump's country-specific tariff drama started in April of last year;

• Looking ahead, at 14:15 CET we’ll be treated to the ECB’s interest rate decision – a 25bps hike. Besides that, we have the obligatory US jobless claims and the release of US PPI data. That will be a nice taster for tomorrow’s main event: the US CPI release. Both the Cleveland Fed’s Nowcast and sell-side consensus expect core inflation to slow to 2.4 percent, setting the stage for a great family fight at next week’s FOMC between the doves and hawks on the board over whether to hike or hold rates.

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