AFS Markets Blog: Midday 15/10/2026

• Meanwhile in markets, it’s risk-off, baby – and bonds are booming. Fears over tight energy markets have given way to concerns over the AI trade, with CoreWeave taking the brunt of the beating;

• You may not have heard of CoreWeave before, but the company is a key player in the AI ecosystem. As a neocloud company, it rents out computing capacity to AI labs and hyperscalers – but growing concerns over its business model have hit the company hard. The magic number right now is 15. CoreWeave’s stock price fell by 15 percent yesterday, while the yield on its 5-year corporate bonds broke above the 15 percent mark. Yields have since retreated from their highs, standing at 14.80 percent on our dashboard this morning, but the G-spread is still up 200bps this week;

• CoreWeave isn’t the only casualty of the latest bout of AI fears. Oracle’s bonds have also come under pressure this week, with its CDS spreads widening to a new record high of 288bps. Interestingly, major hyperscalers Amazon, Google and Microsoft have held up well. Their bonds actually outperformed the broader US corporate bond market in 2026. During an earlier bout of AI-related stress over the summer, these hyperscalers were among the firms hit hardest in the bond market;

• Moving on to sovereign bonds, Bund yields are down 5–8bps this morning in a bull-flattening move. Across the Atlantic, US Treasury yields are down 6–9bps, more than erasing their initial post-CPI losses. While the 2-year yield briefly came within sight of the psychologically significant 5.00 percent threshold, a sharp decline of more than 20bps yesterday’s peak means fears of a breakout were premature;

• Punters have largely put the CPI release – and the rate hike fears it stoked – in the rear-view mirror. While fed funds futures still point to a potential move at the October meeting, with roughly 7bps of hikes priced in, that is down from the coin-toss odds priced in after yesterday’s print. The bigger story, however, is the repricing of the terminal rate. Pricing briefly reached four 25bps hikes by the end of 2027, but has since returned to pricing in three;

• Still, the high energy prices that have central bankers across the globe worried haven’t gone away. Brent crude is trading near $103.50 a barrel at pixel time, still up roughly 70 percent year-to-date. While European diesel futures have slipped nearly one percent this week, that modest pullback barely dents a massive 140 percent YTD rally. Crucially, diesel represents only one part of a broader squeeze across so-called middle distillates – refined products with similar characteristics. Take jet fuel, where we can see the same tightness, with prices also having surged 140 percent YTD;

• The tightness in the market for diesel and similar refined products is ultimately a story of refining capacity shortfalls. According to IEA data, the blame for the shortfall in diesel supplies can be split roughly evenly between the Middle East and Russia. Combined diesel exports from these two regions – which accounted for 45 percent of global seaborne diesel trade in February – is down 60 percent year-on-year;

• Over in Russia, Ukrainian drone strikes have destroyed refining capacity throughout the country. The resulting reduction in diesel output has been so severe that Russia had to ban diesel exports to safeguard domestic supplies during the harvest season. However, some of these export restrictions are now being eased. The US has even recently lifted sanctions on Russian diesel, hoping this will provide some relief to the market ahead of the midterm elections;

• Nevertheless, any celebration at 1600 Pennsylvania Avenue looks premature. The IEA was rather blunt in its latest Oil Market Report, arguing that the resumption of exports is unlikely to provide real relief because underlying refinery capacity constraints remain the bottleneck. That is unlikely to change soon: the IEA expects Russian refinery throughput to remain near this year’s lows throughout 2027. A successful energy ceasefire in Ukraine could allow throughput to pick up next year, though it takes significant time to bring damaged facilities back online. So far, President Trump’s repeated attempts to broker an energy ceasefire have come to little, with the FT reporting this morning that Ukraine is set to resume attacks on Russian refineries;

• Amid the global refining capacity shortfall, the extra slack that refineries abroad have helped provide seems to be starting to fade. The US picked up much of the slack, but over the past few weeks, refinery capacity utilization has dropped to its lowest level since May. Part of this is to be expected, as US refineries catch up on routine maintenance postponed after an intense run above 96 percent of operable capacity since mid-June. Refiners had been running flat out to capitalize on record profit margins;

• On the other hand, margin compression is reportedly also setting in: high freight rates and maritime insurance premiums on crude deliveries are now eating into profits. The IEA warned that additional cost increases could squeeze refining margins enough to force marginal producers to shut down, tightening refined product markets even further;

• Touching on some broader market commentary, the Stoxx 50 is down over half a percent this morning, with losses in S&P 500 futures more contained. In FX, the broad dollar has erased its post-CPI gains. EURCHF weakened this morning, with the cross briefly trading in the 0.92 handle;

• Looking ahead, the afternoon brings a couple of US data releases, including August retail sales, September PPI and the obligatory weekly jobless claims. Tomorrow is set to be a quiet day, with central bank speakers set to dominate the schedule.

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