I am the House

Yields keep climbing, now on oil, not just the buyback story

Treasury yields hit fresh multi-year highs today, and the driver has shifted slightly from what we discussed yesterday. Oil prices extended their surge, and that — not just the buyback disappointment — is now the main thing pushing yields higher.

The moves were broad: the 30-year yield reached levels last seen in 2007, and the 2-year note yield exceeded 4.5% for the first time since 2024. The 2-year is especially telling, since it moves closely with expectations for the Fed's next decision, not long-term sentiment.

The market is now pricing real odds of a rate hike next week. Traders have pushed the probability of a Fed hike at next week's meeting to around 70%, with a move now fully priced in by October at the latest. That's a significant jump from where things stood even a few days ago — the "will they, won't they" question is tilting firmly toward "they will."

A new thread worth adding: AI borrowing is competing with the government for money

Corporate debt issuance is at record levels, with AI companies alone issuing more than $1.5 trillion in new debt this year. This connects directly to the AI discussion from a few posts back. When AI companies borrow enormous sums to build data centers and chips, they're not just exposed to rising rates — they're also adding to the total demand for lenders' money, competing directly with the U.S. government for the same pool of investors. More borrowers chasing the same money tends to push rates higher for everyone, government and corporations alike. This is a genuine new pressure point layered on top of everything else we've tracked — oil, war spending, the deficit, and now AI capital spending, all pulling on the same rope.

The Treasury Secretary just did something no one in his position has done in 50 years

Treasury Secretary Scott Bessent gave a prime-time speech at the Republican Party's midterm convention in Dallas this week — the first time a sitting Treasury Secretary has spoken at a national political convention in 50 years, since 1976. This matters for reasons beyond politics: as one policy analyst put it, "Treasury generally doesn't have a tremendous power but for the market credibility of the Treasury secretary." The job's influence over bond markets depends heavily on being seen as objective and non-partisan — that's part of what makes markets trust the Treasury's tools (like the buybacks we've covered all series) rather than treating them as one more political statement.

A highly partisan convention speech is a real test of whether that trust holds.

Worth noting the tension in his own words: at a separate event this week, Bessent said he acted to stem a "fever that was building" in the bond markets — that intervention (the August 19 buyback announcement) worked only briefly before yields resumed climbing, and today's move to 2007-era 30-year levels suggests the fever hasn't actually broken.

The blunt line of the week

A chief investment strategist summed up the growing skepticism simply: efforts to bring yields down with buybacks are "falling flat" and "papering over a problem." That's now the second independent voice in two days (alongside yesterday's Société Générale quote) using almost identical language — a real signal that this view is becoming consensus among market professionals, not a fringe take.

What's immediately ahead

• Today: wholesale inflation data (PPI) — an early read before tomorrow's more closely watched number

• Tomorrow, Friday: the Consumer Price Index (CPI) — the last major inflation data point before the Fed meets

• Next week, September 15-16: the Fed's decision, now carrying roughly 70% hike odds according to market pricing

The honest read

Today doesn't change the overall picture so much as sharpen it. The fiscal-stress scenario we've been tracking as dominant keeps gaining supporting evidence from new angles — this week alone added AI-driven corporate borrowing and a credibility question around the Treasury Secretary himself to a list that already included Japan, the global bond sell-off, and the buyback's mixed reception. Tomorrow's CPI report is the last piece of hard data before next week's Fed decision — worth watching closely.

Current picture and my math -

• 🔵 Disinflation: ~8% — oil back above $100, a near-certain hike being priced, and yields still climbing all argue against a clean cooling story. This is close to the floor of "still technically possible" rather than a real contender right now.

• 🟠 Stagflation: ~27% — this one's actually gotten more ambiguous, not less. The strong jobs report undercuts the "weak growth" half of stagflation, but oil-driven inflation and a hike into that inflation still fit the pattern loosely. I'd call this "elevated-inflation-with-tightening" more than classic stagflation now.

• 🔴 Fiscal/bond stress: ~65% — this has become the dominant, almost default explanation. The AI corporate debt story is a genuinely new structural pressure (not just sentiment), the buyback isn't working, Japan is straining, and now even the Treasury Secretary's own credibility is in question. Nearly every new data point this week added to this bucket rather than the other two.