The fourth quarter opens with Treasury yields at 24-year highs

The fourth quarter begins the way the third one ended: with the bond market setting the terms.

Yields on the 10-year Treasury note reached roughly 5.32%-5.33% in early Thursday trading and the 30-year bond about 5.66%-5.67%, levels neither has seen since 2002. The two-year note, the maturity most sensitive to the Federal Reserve's next move, rose for a second straight session to around 4.92%. That came one day after Treasuries closed out what Reuters and Euronews both described as their worst quarter since 1994.

Equity futures are not behaving the way that backdrop would suggest. Nasdaq 100 futures were up between 0.3% and 1.2% across pre-market snapshots, carried by chip stocks after Micron's results; S&P 500 futures ranged from roughly flat to up 0.6%; Dow futures were the weak link, printing a three-month low overnight before recovering toward positive territory. Those numbers move minute to minute, so treat them as a direction rather than a level.

What September actually did

The month-end scoreboard explains why this morning feels unsettled rather than celebratory. For September, the S&P 500 fell about 0.45%, the Dow Jones Industrial Average dropped 4.29% and the Nasdaq Composite gained 1.86%, according to Reuters. The Dow snapped a five-month winning streak; the Nasdaq posted a second straight monthly gain. Both the S&P 500 and the Nasdaq still notched a second consecutive quarterly advance, and their fifth in six.

Three indexes, three different months, one explanation: the composition of each index decides how much a yield shock hurts. The Dow's industrial, financial and healthcare weightings felt the long end of the curve; the Nasdaq's largest members have the balance sheets and the AI-capex story to absorb it.

Wednesday's session was a compressed version of the same split. The S&P 500 lost 19.30 points, or 0.25%, to 7,651.54. The Dow fell 443.87 points, or 0.86%, to 50,906.05. The Nasdaq Composite added 63.52 points, or 0.24%, to 26,861.06 — after the S&P had been up as much as 0.7% intraday on a cooler inflation print.

The rate debate has moved to December

That inflation print is the reason the front end of the curve is now moving in the opposite direction from the back end. August headline PCE rose 0.3% on the month and 3.4% from a year earlier; core PCE rose 0.2% and 3.0%. Both undershot what economists expected.

The response in rate pricing was immediate and large. CME FedWatch odds of a quarter-point increase at the October 27-28 meeting sat near 71% a week ago, were close to a coin flip on Tuesday, and were running between 35% and 39% on Thursday morning. Goldman Sachs pushed its forecast for the next hike from October to December and said the Federal Open Market Committee may conclude that no further increases are needed at all.

New York Fed President John Williams gave the market the language it ran with: after September's increase there is, in his words, no urgency to act, and one more hike this year may be sufficient. Williams holds a permanent vote, which is why the remark moved pricing more than a regional president's comment usually does.

So the policy-sensitive two-year yield is drifting with the data, while the 10- and 30-year yields keep climbing for reasons that have little to do with the October meeting: energy-driven inflation risk, government borrowing needs, and the same debt repricing playing out in Japan and Germany. The Treasury department has been increasing long-term bond buybacks to steady the market, and Reuters reports that has not helped much.

Oil is the wild card again

Crude did a full round trip overnight. Brent slipped below $97 a barrel early on recovering Middle East shipments and a surprise build in U.S. crude inventories — commercial stocks rose 922,000 barrels to 427.3 million in the week ended September 25, against expectations for a small draw — then turned and gained about 2.4%-2.6% to trade just above $100 by mid-morning in Europe as U.S.-Iran talks showed no visible progress. West Texas Intermediate followed the same path, from roughly $89 to about $92.6-$92.8.

One caveat on the headline comparisons: the Brent contract rolled at the end of September. The expiring November contract settled Wednesday at $103.50, while the now-active December contract settled at $98.03. Thursday's prices are a move against the December contract, not a collapse from $103.50 — a distinction several month-end summaries have blurred.

For September as a whole Brent rose about 14%, its best month since July, and WTI about 5%. That is the inflation channel the long end of the curve keeps pricing.

What matters in the next 26 hours

Initial jobless claims arrive at 8:30 a.m. ET, with consensus around 200,000-201,000 against 197,000 the week before, and continuing claims near 1.73 million. ISM manufacturing follows at 10:00 a.m. ET, consensus 54.8-55.0 after 54.6; the prices-paid sub-index, forecast near 72 after 71.1, is the line worth reading for anyone tracking how energy costs reach goods inflation.

Then Friday's September employment report, consensus near 90,000 payrolls after 162,000 in August, unemployment holding at 4.1%. Goldman's own note flagged what everyone is weighing: the October meeting falls in a politically sensitive window before the midterms, and the jump in bond yields has already delivered a tightening effect of its own.

Two sessions of data, in other words, decide whether the front end keeps easing while the long end runs — or whether both ends start pointing the same way again.

A note on reading pre-market numbers: the futures quotes above were captured at different moments between roughly 1:40 a.m. and 5:50 a.m. ET, which is why they disagree. Levels at the open are the ones that count.