Journal ·
Thursday, 1 October 2026
Regime Risk-offMarket regime
Real borrowing costs rose. The 10-year Treasury yield climbed 12 basis points in the week to 30 September, and 10 of those came through the real rate, with only 2 from inflation expectations (FRED). That is tightening in real terms, which weighs most on companies that depend on cheap financing. Lenders to weaker borrowers pulled back in the same week: high-yield credit spreads widened 19 basis points to 3.12%. Equity options have not followed, and the VIX, the Cboe measure of expected stock volatility, stays in its calm band. Participation remains thin. Only 281 of 978 names sit above their own 50-day EMA, a medium-term trend line, and the series is flagged deteriorating, while SPY, the S&P 500 fund, holds 5.5% above its own. A minority of stocks is carrying the index. Each rate and credit change here is a single week-over-week reading, so it shows one week's direction rather than an established trend.
Key numbers
| Metric | Level | Read |
|---|---|---|
| Regime | Risk-off | Close-of-day read |
| VIX | 16.39 | Calm |
| Breadth above 50-day EMA | 28.7% (281/978) | Deteriorating |
| SPY close / 200-EMA | 764.10 / 724.02 | +5.5% above trend |
| 10Y Treasury | 5.29% | 2026-09-30; week over week +12bps |
| 2Y Treasury | 4.88% | 2026-09-30; week over week +7bps |
| 10Y–2Y spread | 0.41% | 2026-09-30; week over week +5bps |
| 10Y breakeven inflation | 2.36% | 2026-09-30; week over week +2bps |
| Real 10Y rate | 2.93% | 2026-09-30; week over week +10bps |
| HY credit spread | 3.12% | 2026-09-30; week over week +19bps |
| Fed funds | 3.75% | 2026-09-01 |
| Initial jobless claims | 197K | 2026-09-26; week over week -1K |
| Unemployment rate | 4.1% | 2026-08-01 |
| Nonfarm payrolls | 159.1M | 2026-08-01; change not reported |
| Housing starts | 1,275K | 2026-08-01; change not reported |
Regime assessment
Financial conditions are tightening on two fronts, and the equity index has not priced that in. Higher real yields raise the bar every stock has to clear. Wider credit spreads raise the cost of capital for the weakest companies first. With most of the universe already below trend, the index depends on its leaders absorbing that pressure. The bond and options markets disagree, and the data cannot say which one is wrong.
The labour market does not explain the credit move. Initial claims edged down to 197K in the week to 26 September, a low level, so spreads are not widening in response to job losses. Rates and risk appetite explain it more consistently. The 2-year yield also sits well above the 3.75% fed funds rate, which reads as a bond market that expects no near-term relief from policy. Payroll and housing figures arrive without changes and say nothing about the direction of activity.
What would change the call
A joint reversal on a later weekly print would undo the defensive reading. That means the high-yield spread narrowing below 3.12%, the real 10-year falling below 2.93%, and breadth rising with its deteriorating flag cleared, all while SPY holds above its 200-EMA.
A single input moving is not enough. Spreads narrowing while breadth keeps falling would leave the narrow-leadership problem in place. The view that bonds expect no policy relief fails if the 2-year yield falls toward the fed funds rate.
What to watch
- Weekly jobless claims: the next print tests whether the labour data keep contradicting the credit widening. Its release date is not yet scheduled.
- Payrolls and housing starts: the next releases would supply the month-over-month changes missing from the current data.
- High-yield spread and real 10-year: a second week of both rising would turn a one-week move into a pattern. A reversal in both would feed the invalidation test above.
Status
Risk-off — 13th consecutive read in the journal; prior level 30 September 2026, also risk-off.