Treasury Yields Pull Back As Semiconductors Seek A Bottom

Market Commentary – October 19, 2026

Last week, Treasury yields pulled back from multi-year highs, raising the possibility of a cyclical peak, even as elevated crude oil prices continue to feed inflation readings

Bank earnings were mixed, with some firms beating expectations while others fell short. Corporate bond spreads – the extra yield investors demand over Treasuries – remain historically tight despite higher interest rates. Semiconductor stocks sold off amid the dual worries over the financing costs of the AI buildout and competition from China. The sell-off is creating oversold conditions, while still-robust demand for chips indicates there may be a short-term bottom. Federal Reserve (Fed) Chair Kevin Warsh, speaking in Bangkok, Thailand, declined to preview the next rate decision but reiterated the Fed’s commitment to price stability. He also repeated his bullish views on artificial intelligence (AI).

Fed Chair Warsh: The Fed “Will Deliver Price Stability”

Last Friday morning, Fed Chair Warsh spoke at the IMF-World Bank Annual Meetings in Bangkok. In his remarks, he reiterated the Fed’s commitment to price stability and praised “a synchronous tightening in monetary policy in most places around the world” as a common fight against inflation. He marveled at global economic resilience in the face of geopolitical shocks and tighter monetary policy, and he pointed to “structural growth, an investment surge” (broader than just AI) providing tailwinds and durability in the U.S. He referred to AI as “probably the most consequential change to the U.S. and the global economy in my lifetime.”

A Cyclical Peak In Treasury Yields May Have Formed

We believe that a cyclical peak may have formed in Treasury yields. Although we believe we have entered a period of secularly rising inflation, yields can still decline on an intermediate-term basis. The AI sell-off triggered a flight to safety, and September payrolls came in below expectations, lending credence to concerns about economic growth rather than a pure focus on inflation.

Despite higher inflation data, which we discuss below, Treasury yields fell. This is a positive sign and may indicate growing confidence that the Fed will create price stability. The 10-year Treasury yield has rolled over, with initial support near 4.8% and 4.7%. If yields continue to ease, this should allow equities to have their year-end seasonal rally.

The 10-year yield faces several risks that could push it higher later this year and into next year. First, and most obvious, is the risk that energy prices put continued pressure on inflation. Second, bond vigilantes could reemerge, selling Treasuries and driving yields higher amid concerns about funding the U.S. deficit and another debt ceiling debate next year. Lastly, there are concerns about the amount of bond supply coming not only from the U.S. government but also from technology companies issuing sizable amounts of debt to fund the AI buildout. Near term, however, heading into the mid-term elections, interest rates look positioned to fall.

The 2-year Treasury yield is more anchored to Fed policy. The Fed looks to be on hold for October, but the market is pricing in a higher fed funds rate in December and into early next year. There is strong resistance on the 2-year near 5.0%, which we expect will hold. Near term, the yield could fall to 4.2%, but the risk remains that it moves higher again if expectations for additional Fed tightening increase