The bond market was the big story this week. On Wednesday, the 10-year Treasury yield climbed above 5.1%, its highest level since July 2007, and the 30-year yield hit levels last seen in 2004. It was the biggest one-day jump in yields in nearly a year and a half. Several things pushed rates higher at once: a strong report on business activity, rising odds of another Fed rate hike in October, weak demand at an auction of 5-year Treasury notes, and oil prices climbing back above $100 a barrel. Fed Governor Michael Barr added to the pressure, saying further rate increases are likely needed. This commentary added to the volatility over the week.
The business activity report that set things off showed an economy running hot. S&P Global’s September survey rose to 58.4, the fastest pace of growth since July 2021, with services at a five-year high and manufacturing at its strongest since May 2022. Companies are hiring at the fastest pace in over four years, and weekly jobless claims fell to 197,000, still very low. The job growth is being primarily led by the services sector, construction and manufacturing, followed closely by the healthcare industry (home health and hospitals). The catch here is prices. Business costs rose at the steepest rate in four years, led by fuel and shipping. Strong growth is good for company earnings, but it keeps pressure on inflation, and on the Fed to respond.
Housing got a lift from builders, not from rates. New home sales jumped 6.4% in August to a 684,000 annual pace, the highest since December 2025 and well above the roughly 615,000 economists expected. Builders are using price cuts and incentives to move homes. The median new home price was $393,700, down 5.8% from a year ago. Mortgage rates are working the other way, with the average 30-year fixed rate reaching 7.26% on Wednesday. On the global front, the U.S. and China agreed to extend their trade truce from Nov. 10 to Jan. 10, removing a key source of uncertainty as President Xi began his first visit to Washington in over a decade. With negotiations ongoing with many of our trade partners, a resolution with one may lead to a domino effect for the others.
What do higher yields mean for you? As CNBC pointed out this week, they raise borrowing costs for homebuyers, car buyers, and credit card users. Small businesses tend to feel it most because they have fewer ways to borrow. On the plus side, savers can earn more on cash and short-term interest bearing investments than they have in a long time. This push and pull dynamic will certainly get played out further in the weeks and months ahead.
Interesting to Note
Fall officially arrived Tuesday evening with the autumnal equinox. The word comes from Latin for “equal night,” but here’s a fun twist: day and night aren’t exactly equal on the equinox. Because the atmosphere bends sunlight and the sun is a disk rather than a single point, most of the U.S. still gets a few extra minutes of daylight. The day when light and dark truly even out, sometimes called the “equilux,” arrives a few days later.
Looking Ahead
• U.S.–China talks (through Jan. 10): The truce extension buys negotiators more time to reach a broader deal. We’ll watch for any follow-up on tariffs, rare earth minerals, and technology after Xi’s visit wraps up later today.
• GDP & PCE inflation (Sept. 30): The Fed’s preferred inflation gauge (PCE) for August comes out alongside the third estimate of Q2 GDP growth.
• September jobs report (Oct. 2): A strong report could firm up the case for another Fed hike, while a soft one could give the Fed room to pause.
• Next Fed meeting (Oct. 27–28): Futures markets now see a strong chance of a second quarter-point hike in October. Inflation and bond market moves between now and then will shape that decision.
Have a nice weekend!
Written By: Chris Wasson, CFP®
