The 10-year yield already spiked to 5.3% after clearing 5.0%, and the core call is that rates are in a topping process that could still squeeze a bit higher before rolling over. The setup is framed against 2018 and 2022: midterm-year yield peaks tend to land in early October through early/mid-November, then fade into December, with this cycle likely peaking around the next FOMC on October 28 or shortly after a bad inflation print. The bond market’s immediate risk is a late-October/early-November revolt if the Fed still does not hike despite October hike odds collapsing from 64% a week ago to 17.7%. Best guess: a local top may already be in or land by early November, with rates starting to fall by mid-November and more clearly after the midterms.
The 10-year yield spiked to 5.3% and already cleared a soft target at 5.0%.
The current rise is expected to revisit the October high, which has already been surpassed.
Best guess: the current 10-year yield top finalizes before mid-November.
In the last two midterm years, 10-year yield tops landed between early October and early/mid-November, then rates fell into December.
2018 is the main analog: the 10-year topped in early October, then printed a slightly lower high in early to mid-November.
2022 is the other analog: the 10-year ran into late October, then made a lower high in November; this year’s move is smaller because inflation is less of a concern than in 2022.
The next Fed meeting is October 28, and that timing is where weakness in yields is historically sniffed out.
Market pricing flipped fast: an October hike probability fell from 64% a week ago to 17.7%.
If the two-year yield leads again, the Fed is behind; the bond market dislikes the Fed not following the bond market more aggressively.
The 10-year may struggle to fall until markets are confident the Fed gets back above neutral, or an approximation of neutral.
Local top risk centers on the next FOMC: it could be a higher high or lower high around the meeting, with a final high shortly after if a bad inflation report hits.
Base case for the short term: a bad inflation print next week, no October hike, and peak fear in late October as bond vigilantes revolt.
The unemployment rate rose mainly because labor force participation increased, not because layoffs surged.
If peak fear hits in late October or early November and a December hike follows, rates could start falling by mid-November, consistent with the last two midterm years.
By early November it makes sense to assume the local top for rates is in; the 5.0% level is treated as the most likely overshoot, with upside scenarios at 5.4%, 5.5%, or 5.6%.