-IG spreads ended the week near 83bps — the widest since April — though still within shouting distance of generational tights. The real crack opened in high yield: spreads broke out to their widest since April and are sitting above 300bps. The AI debt trade continues to show stress fractures as Oracle's borrowing costs and CDS have blown out. After months of indiscriminate tightening, the market is finally starting to discriminate. Other markets are already back to levels not seen since the start of the war with Iran (Agency MBS pushed wider, sitting at the YTD wides, with Euro IG spreads spiking close to their YTD highs). And within credit the pain is tiered exactly as it should be — CCC spreads blew out ~131bps over the past month versus just 5bps for BBB. The weakest borrowers are getting hit first.
-Supply: September set an all-time record for the month — $210bn of IG issuance. That's the fourth monthly record this year after January, February and July. This week was effectively a single deal: Paramount's ~$52bn debt-and-loans package on Wednesday to fund the $81bn Warner Bros. purchase (set to close Tuesday) — the fifth-largest corporate bond sale on record. The IG deal totaled $30bn, with the $5.25bn 10-year IG tranche pricing at 262.5bps over Treasuries — roughly a 7.9% yield with the 10Y at 5.3%. The high-yield leg ($12bn+), the largest HY offering in history performed poorly as $6bn of 8.25% second-lien 2031s sold off on the break (has since retraced this move). Next week supply is expected to slow with dealers calling for $25–30bn. Notably supply is expected to slow in October due to seasonality, but also due to higher yields pushing borrowing to the sidelines for now for those companies that can wait. Dollar datacenter/hyperscaler issuance paused for September, putting to bed the theory that treasury yields were rising as a result of this debt crowding out treasuries, as treasuries sold off a whopping 50bps throughout September despite any of this issuance. This issuance may pick up again in Q4 as early prefunding for 2027 begins.
-Rates: the 10Y touched 5.34% intraday Thursday — its highest since 2002 — before easing to around 5.18% after a relief rally took place. This relief rally started Thursday after Fed voting members voiced that they had not yet decided on an October rate hike. PCE data earlier in the week was also supportive, but was overpowered by a strong GDP growth revision. The rally continued Friday after soft NFP numbers (+29k payrolls vs +90k exp. in addition to prior period revised lower). That being said, for the quarter as a whole we ended up roughly +87bps, the steepest quarterly climb since 1994. This rise can largely be attributed to strong growth, a hawkish Fed, and a lack of resolution on the Iran conflict, as well as momentum selling. Notably the market had also got ahead of itself and starting pricing in an October hike, for which odds have now collapsed to ~18% from 71% two weeks ago— the market now looks to December for the next move.
Chart of the week:
The canary in the coal mine. High-yield spreads widened ~60bps to 321bps — the sharpest monthly move of the year and the widest since April — while IG slept near its tights until last week. That's the classic sequence: HY cracks first, IG follows. The fundamental tell came Wednesday, when the high-yield leg of Paramount's record financing — the largest HY offering in history — broke on the open: the $6bn 8.25% second-lien 2031s dropped 5pts to $95.00 intraday, and the existing 6.875% 2036s fell to $79 to yield 10.4%. That price action spooked the credit markets after the market backdrop was already a little precarious.
Bloomberg US Corporate High Yield Bond Index
🗓️ Upcoming Economic Data
Monday, 5 October 2026
• US ISM Services (Sep).
• S&P Global Services PMI Final (Sep).
Tuesday, 6 October 2026
• US Trade Deficit (Aug).
• 3-Year Note Auction.
Wednesday, 7 October 2026
• FOMC Minutes, September Meeting (2:00 PM).
• 10-Year Note Auction
Thursday, 8 October 2026
• Initial Jobless Claims
• 30-Year Bond Auction
Friday, 9 October 2026
• U. Michigan Consumer Sentiment Prelim
Next week’s minutes will show how hawkish the committee was during the hike in September, and the 30y bond auction on Thursday will be important to watch for demand for treasuries after the last auction performed very poorly and added fuel to the sell off. Elsewhere continued headlines on the war with Iran will be a driving factor for markets.
Questions? Comments? Feel free to shoot over an email to [email protected].
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.