There is a mountain: Separating signal from narrative

The recent rise in long-term yields is more likely to stabilize than accelerate because markets are over-extrapolating resilient nominal growth and AI investment while underlying activity is beginning to cool.

• September has delivered a negative S&P 500 return in 55% of years since 1951; when the index entered the month above its 200-day average, positive years had a 2.69% median return versus -1.97% in negative years.
• The early-September move in the 10-year Treasury yield reached a 3-standard-deviation rate-of-change event over two months, a level that can pressure equities, although stabilization at the upper end of the range could remove that headwind.
• Technology companies issued nearly $270 billion of gross investment-grade and high-yield debt through August 2026, but net technology issuance was $165 billion, versus just under $500 billion for all nonfinancial corporations.
• Total net nonfinancial corporate issuance represented only 1.69% of the market value of outstanding U.S. Treasury debt, offering little support for the claim that AI-related borrowing is crowding out Treasuries.
• The authors link the rise in nominal yields mainly to stronger nominal growth and a repricing of policy expectations, while warning that AI investment growth, income growth and fiscal conditions could weaken in coming quarters.
• The Citi Economic Surprise Index and its Data Change Index have softened in recent weeks, while housing remains stagnant, non-AI capital expenditure is tepid, consumption faces muted income growth and manufacturing appears driven by inventory restocking.

Takeaway: Investors should treat seasonality, debt-supply narratives and calls for 6% Treasury yields cautiously; a moderation in growth could cap further increases in long-term yields, but renewed Fed tightening would revive downside risks for equities.