Baker Market Update 2026-10-23

Happy Friday everyone! This week we saw a couple of historic streaks come to an end, and fittingly, both snapped on the same day. First, NBA star and reigning MVP Shai Gilgeous-Alexander saw his all-time NBA-record streak of 141 consecutive games scoring at least 20 points come to an end Thursday against Denver. That same Thursday, the 10-Year Treasury yield snapped a streak of its own, falling below the 5% threshold for the first time in a month. One streak ended on a quiet 17-point night. The other ended with the sharpest single-day drop in Treasury yields since March 2023.

The Treasury market's own streak went out with a bang. Monday through Wednesday, yields stayed elevated on a hawkish Fed and rising oil prices, with the 10-Year hitting 5.15% on Monday and the 2-Year creeping up to 4.81% by Wednesday. Then came Thursday. Renewed worry over how the AI buildout gets financed, sparked by Meta's spending plans and widening credit spreads on data center borrowers, sent the Nasdaq down more than 2% and pushed investors into Treasuries. The 10-Year fell 19 basis points to 4.95%, its biggest one-day drop since March 2023, while the 2-Year fell roughly 18 basis points to the mid-4.60s and the 30-Year dropped about 13 basis points to 5.29%. For the week, the 10-Year is down about 10 basis points, the 2-Year about 5, and the 30-Year about 12, leaving the spread between the 2-Year and 10-Year slightly flatter at 0.30% versus 0.35% last Friday.

What made the move unusual is that oil was sending the opposite signal. Crude jumped about 4% to a five-month high Thursday on Houthi attacks on Saudi Arabia and supply disruptions in Libya and Russia, which would normally push yields higher. Instead, growth and credit concerns won out, and the long end led the rally. It is also worth keeping the move in perspective. The 10-Year hit about 5.36% earlier this month, its highest level since 2002, so dipping under 5% is more of a pullback from 24-year highs than a new trend.

The FOMC meets next Wednesday, October 28th, and is widely expected to hold the Fed Funds Rate at 3.75%-4.00%. CME FedWatch prices roughly a 90% probability of no change, up from essentially a coin flip a few weeks ago, even though the Fed raised rates just last month. Three developments drove that shift. First, September payrolls rose just 29,000 against expectations near 84,000, with 60,000 of downward revisions to prior months. Second, after a hot September CPI briefly pushed hike odds above 50%, Chairman Warsh offered no signal on the next move and pointed to AI-driven productivity gains as a potential source of lower inflation. Third, Thursday's selloff tightened financial conditions on its own, with wider credit spreads and falling stock prices doing part of the Fed's work. A December hike is still priced at roughly 70%, so this looks like a pause in the Fed's hiking cycle rather than the end of it.

Next week is a busy one. Consumer confidence comes out Tuesday, followed by the FOMC decision Wednesday. Thursday brings the first look at Q3 GDP and September PCE, the Fed's preferred inflation gauge, along with earnings from big tech names like Microsoft, Alphabet, and Amazon. Every streak has to end eventually. With the FOMC decision, GDP and PCE all on deck, the data will tell us whether the 10-Year can stay below 5% or climb back above it. Have a great weekend everyone!

Source: CME Group