Bloomberg Surveillance TV: October 8th, 2026

Ed Yardeni · Yardeni Research

Rising US yields mainly reflect a booming economy, not a bond-vigilante revolt or inflation fears.

He sees the yield backup as largely a sign of US economic strength. Consumer spending is holding up, retiring baby boomers keep spending, capital spending is booming, AI hyperscalers keep borrowing heavily, and the deficit is very large. He notes the real rate has led the rise in nominal yields rather than inflation expectations. He also attributes part of the global move to the unwinding of yen carry trades after Bank of Japan hikes.

“Here in The United States, I would say a more important explanation for what's going on is that we've seen an economy that's really on fire. It's booming.”at 2:49

Ed Yardeni · Yardeni Research

A 10-year yield above 6%, above nominal GDP growth, would be a real bond-vigilante threat to the economy.

He compares the 10-year yield, near 5.5%, with nominal GDP growth of roughly 6% to 6.5% year over year. He argues the bond-vigilante concept becomes a real concern if the 10-year reaches 6% or higher, because once yields exceed nominal GDP growth the economy slows. He adds that the economy is currently less interest-rate sensitive, since higher rates help retirees through money market yields and AI borrowers can still access a very liquid market. He also says a fast move to 6% could crack the financial system and force the Fed toward liquidity facilities, while a slower move would do less damage.

“the bond vigilante concept would be a real concern if we started to see the bond yield get up to 6% and higher. Because I think once you get above nominal GDP, you do start to slow it down.”at 6:45

Ed Al-Hussainy · Columbia Threadneedle Investments

US long-end yields reprice on Fed expectations, so faster Fed tightening should help stabilise them.

He says this year's US repricing has been driven by Fed expectations, not term premium or inflation risk premium further out the curve. The economy has accelerated and the Fed has licence to tighten. If the Fed does less, it risks more damage to the long end. Front-loading the tightening into the end of the year and early next year gives it a better chance to stabilise the long end. Fiscal concerns, by contrast, are not what is driving the US repricing.

“And the less they do, the more damage they risk to the longer end of the curve. So I think front loading this tightening process ... gives them a better chance of stabilizing that long end.”at 14:04

Ed Yardeni · Yardeni Research

AI borrowers may now be seen as safer than sovereign debt, such as French or US bonds.

He suggests AI hyperscalers' bonds may have become the new sovereign bonds. Investors seem more comfortable holding them than sovereign debt from France and possibly the US. He ties this to a very liquid market and to heavy AI borrowing. He hedges the point with 'maybe'.

“Maybe the AI borrowers are the new sovereign bonds in the sense that investors feel actually more comfortable owning them than they feel owning sovereign debt from France and maybe even The United States.”at 7:23

Ed Al-Hussainy · Columbia Threadneedle Investments

The view that AI capex ignores interest rates is wrong; it is only insensitive at current levels.

He says it is tough to tap the brakes on AI capex to bring inflation back to target, and he is not sure who could do it. The perception that the sector is interest-rate insensitive is incorrect. The sector is insensitive to the current level of rates, but the next step is likely to show up in corporate credit spreads rather than rates.

“There's the perception that the sector's interest rate insensitive. I think that perception is incorrect, but they're insensitive to the current level of interest rates.”at 15:36

Ed Al-Hussainy · Columbia Threadneedle Investments

Hyperscaler bonds are being punished, and that underperformance can continue well into next year.

He says the hyperscaler issue is showing up in the corporate bond market as a premium on hyperscaler debt. Investment-grade hyperscaler bonds are underperforming, and the extent of that underperformance gives room for it to continue well into next year. The hyperscalers keep borrowing heavily to fund AI capex, which is what is driving the premium.

“those hyperscalers are getting punished. They are getting punished. And the extent of underperformance in that hyperscaler sector, there's a lot of room for that to continue well into next year.”at 16:12

Ed Al-Hussainy · Columbia Threadneedle Investments

Labor market stability, so far strong, is at risk next year as high rates hit the economy.

He says rising unemployment is the ultimate confirmation that the economy has been squeezed too hard. The labor market has been very stable this year, and unemployment has come down. He expects that stability to be at risk next year because high rates will start to affect the economy.

“That stability, I think, is at risk next year. I think these high rates will will start to impact the economy.”at 16:54

Nela Richardson · ADP

The labor market is hotter than people credit, with ADP tracking 95,000 jobs a month and rising overtime.

She says stability is present but uneven, with healthcare still the reliable source of hiring, and jobless claims are flat week to week even though context is changing. Long-term unemployment has risen to 27.1% of the unemployed in the latest BLS report, so the headline needs context. She argues the market is hotter than credited based on ADP's run rate of about 95,000 jobs a month and stronger overtime hours in manufacturing. Gains are modest but people are working more on the factory floor.

“I actually think this labor market is a little bit hotter than people are giving credit to it. In our numbers at ADP, we're tracking right now about 95,000, a run rate of 95,000 jobs a month.”at 20:08

Nela Richardson · ADP

Higher rates will first hit small bank-dependent firms' hiring; that has not shown up yet.

She expects rate transmission to Main Street to show first at small firms that depend on bank loans, not at larger companies. Small firms are the intense signal of that mechanism. For now, firm hiring still looks okay, so small firms are not yet bearing the burden of the rate increase. She says that could change as the cycle continues or if rates rise again.

“Where you're probably gonna see it is in small firms. So you may not see that interest rate bleed into larger companies and their hiring. You might see it more in the small firms that are more dependent on bank loans.”at 21:51

Ed Yardeni · Yardeni Research

France's debt trajectory looks like Greece's 2010 crisis; no positive spin on French yields.

He says France is starting to look like a Greek debt crisis. In 2010 bond vigilantes pushed Greek yields to about 40%, which got politicians' attention. Greek yields now sit below French yields, which he cites near 4.9% to 5%. He sees no positive spin on the French situation.

“I don't think you can really put a positive spin in France. I mean, France is starting to look like a Greek debt crisis.”at 3:47

Ed Al-Hussainy · Columbia Threadneedle Investments

France's bond selloff is a fiscal problem the Fed cannot fix.

He contrasts the US and France. In the US, the repricing is driven by Fed expectations, and tighter policy can help the long end. In France, the problem is distinctly fiscal, so Fed policy does not address it. He notes French spreads have widened and liquidity is low, though sovereign auction demand has been solid.

“That's not true in France. France is a distinctly fiscal issue.”at 14:19

Nela Richardson · ADP

Capital investment is less rate-sensitive than before; upstream manufacturing is expanding despite high rates.

She says the economy is less rate-sensitive for capital investment than it has been historically. Upstream sectors such as transportation equipment, industrial chemicals and technology hardware are seeing rising activity. She reads that as evidence the economy is ready for an investment boom despite higher rates. Some sectors will keep expanding while others retreat, so the picture is not uniform.

“I think when it comes to the capital investment, the economy is more rate insensitive than it has been historically.”at 22:48

Nela Richardson · ADP

Policy uncertainty, including geopolitics, causes firms to retrench from long-horizon investment projects.

She says policy uncertainty has historically pulled back investment. When firms plan big projects five, ten or twenty years out without certainty about the landscape, they retrench. Geopolitics is one source of that uncertainty, and it can hold back investment even outside the monetary story. Hiring stays modest partly because firms can add output through hours rather than headcount.

“what could pull them back, what has pulled them back in the past is uncertainty on the policy landscape. ... if they look at geopolitics ... that's going to lead to a retrenchment.”at 24:13

Ed Yardeni · Yardeni Research

Bank of Japan rate hikes are unwinding yen carry trades, pushing global government bond yields higher.

He says the most likely single explanation for rising bond yields worldwide is the unwinding of the carry trade. Hedge funds and speculators borrowed in Japan at near-zero rates and bought government bonds. As the Bank of Japan raises rates, they are unwinding those positions, which lifts global yields.

“it's probably the unwind of the carry trade. As the Bank of Japan has been raising interest rates, all those hedge funds and speculators that borrowed money in Japan at near zero rates are now unwinding their positions.”at 2:24

Ed Yardeni · Yardeni Research

The Fed matters less than before; the real bond problem is fiscal, and Treasury buybacks are the fix.

He argues the Fed matters less than in the past because the economy is less interest-rate sensitive. The core problem is fiscal policy and the deficit. Treasury Secretary Bessent is in a bind, with buybacks of Treasury bonds and more bill issuance as the only real tool, which he calls the bazooka. He reads Bessent's acknowledgement that he cannot control the situation as a sign he doubts the bazooka will fix things. He also says the deficit is extremely large.

“Well, you know, the Federal Reserve matters, but not as much as it mattered in the past. ... But let's face it, the problem is fiscal policy.”at 7:50

Ed Yardeni · Yardeni Research

Yardeni turned more cautious on US stocks in mid-September over bond-market risk.

He says his firm turned more cautious in mid-September after seeing higher and longer oil prices, stronger-than-expected economic growth, and heavy demand for credit. He believes these together could create a bond-market problem, and he says it has happened.

“That's why back in mid September we turned more cautious on the market because we did start to perceive that between higher and longer oil prices and stronger than expected economic growth and all the demand for credit, that, we could have a problem in the bond market, and we do.”at 9:23

Ed Al-Hussainy · Columbia Threadneedle Investments

The Fed's shift to waiting is premature; it should front-load tightening given incoming data.

He finds it striking that the Fed has moved away from its September high conviction that it would front-load tightening, and now seems content to wait. He calls this premature given the data still coming in. In his view, front-loading hikes into the end of the year and early next year would offset economic heat and give the Fed a better chance of stabilising the long end. Inflation is on track for the high 2% area by early next year, which is not bad but still well above target. The approach looks too slow.

“we've pivoted away from some high conviction coming out of the September FOMC meeting that these guys are going to front load the tightening cycle to now they have all the time in the world to relax and sit back. It's very strange. I think it's premature given the data that's continued to come in.”at 12:12

Ed Al-Hussainy · Columbia Threadneedle Investments

US inflation is on track for the high 2% range by early next year, still above target.

He says inflation is on track to end up in the high 2% range by the beginning of next year. He calls this a reasonable number but notes it is still nowhere near the Fed's target. He uses this to argue the Fed has more work to do and should not be relaxing.

“At the moment, inflation's on track to end up somewhere in the high twos by the beginning of next year. It's not a bad number, but it's still nowhere near the target.”at 12:58

Ed Al-Hussainy · Columbia Threadneedle Investments

Higher rates are already hurting housing; mortgages had a bad month at 7.5%, with investor losses building.

He says the pain is already visible and starting to spread into the housing market through mortgages. Mortgage rates hit 7.5% after a bad month. Rate volatility over the past six weeks has widened mortgage spreads, so mortgage investors are starting to take losses. That pressure is also moving into high-yield and loan markets.

“I think we're already seeing the pain and you can see it start to matriculate into the housing market, mortgages. Mortgages have just had a really bad month. 7.5%.”at 14:44

Ed Al-Hussainy · Columbia Threadneedle Investments

High-yield spreads, around 300 bps, have not yet priced in weakening corporate balance sheets.

High-yield spreads are around 300 basis points and have moved in line with rate volatility so far. He argues the market has not yet priced in the deterioration in corporate balance sheets because the process is still very early. Weaker-balance-sheet corporates are expected to feel pressure, and the next step may come through corporate credit spreads rather than rates.

“We haven't really priced in the deterioration in corporate balance sheets. It's very early in that process.”at 16:04

Nela Richardson · ADP

Consumer-oriented sectors show no overtime growth, so consumer spending is not really taking off.

She notes that overtime is not rising in consumer-oriented sectors such as apparel and food and beverage. That signals consumer spending is not really taking off. Consumers may ultimately bear the biggest burden from higher interest rates, even though these sectors are still spending despite the rates.

“Notably, we're not seeing overtime in consumer oriented sectors like apparel, like food and beverage. So this is not something where consumer spending is really taking off.”at 23:36