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Data takes a back seat to “risk emotions”: With few fundamental economic releases early last week, AI valuations, earnings and geopolitics drove capital markets activity. The Federal Reserve had been in its blackout period since Chair Warsh’s October 16^th remarks at the IMF meetings. He offered no forward guidance beyond reiterating that the Fed had “made very clear” its commitment to price stability and that he does not prejudge meetings. Markets read that as a Fed Funds rate “hold” and have largely downplayed the likelihood of any rate movement at this week’s FOMC decision.  Despite a light cadence of data releases, Treasury market volatility surged, positioning capital markets in a cautiously bullish formation ahead of the Fed’s decision this Wednesday in the week ahead.

Treasuries stage the biggest rally in over two years: Yields started the week near their lowest levels since late September after retreating from multi-decade highs set the week of October 5^th, with the benchmark 10-year U.S. Treasury near 5.12% last Monday. The AI and technology selloff then accelerated midweek. Meta signaled much higher capital spending in earnings results last Wednesday, which raised concern about the borrowing needed to fund AI buildouts. The Nasdaq 100 fell nearly 3% on Thursday and some semiconductor stocks dropped almost 7%. Stress in French government bonds, with pressures disbursed also to Italy, Portugal and Spain, pushed investors towards safe-haven assets such as Treasuries. Higher oil prices (Brent Crude blew through $110/barrel) and Middle East tensions added to demand for safe assets. Last week produced the largest single-day Treasury rally in more than two years, with the 10-year yield falling the most in a day since the March 2023 banking crisis before stabilizing the next morning below 5.00%. The benchmark 10-year Treasury yield briefly reached 5.15% Wednesday before falling about 17 bps Thursday to close at 4.95%. It rebounded to 4.99% Friday, roughly 8 bps below the prior Friday’s 5.07% close. The 2-year yield also dropped about 17 bps Thursday, ending the week at 4.68%, roughly 3 bps below the prior Friday’s 4.71%. These moves flattened the 2-to-10-year yield curve by about 5 bps over the week to roughly 31 bps. The MOVE Index, an accepted institutional measure for implied bond market volatility, jumped about 11 points on Thursday and remains firmly in the “upper end” of its historical range year-to-date. The CME FedWatch Tool now shows roughly 80% odds of a December hike, marginally down from earlier in the week.

Credit spreads widened as risk appetite dwindles: Investment grade credit spreads widened over the last two sessions last week as investors pulled back from risk, new issuance offerings stalled and the global price of oil rose. A wider CDX IG Index and a flatter Treasury curve added to the move. The risk-off sentiment also widened Agency CMBS spreads, particularly in less-liquid structures. Fannie and Freddie multifamily spreads widened only modestly and outperformed corporate credit, supported in part by their implicit government guarantee. Entering the week, Fannie Mae DUS/MBS investor spreads were about 6-8 bps wider on 5- and 7-year deals and as much as 10-12 bps wider on 10-year deals since mid-September. On the week, Fannie Mae DUS/MBS new issue investor spreads widened another 2 bps on the 5/4.5 and 1 bp on the 7/6.5, while the 10/9.5 was unchanged. Spreads on all three standard structures remain slightly tighter than in early January 2026, as third- and fourth-quarter spread widening has reversed much of the year’s earlier tightening. On new issuance, Investment Grade issuance totaled about $21.9 billion (Est. $25 billion) through last Friday, bringing October IG volume to about $62.8 billion compared to a $100 billion monthly projection. Fannie Mae DUS/MBS rate lock volume totaled roughly $700 million, down from about $800 million the prior week and modestly below the roughly $820 million 4-week average. Freddie Mac priced its ~ $250 million K-J55 supplemental deal and also priced roughly $760 million of Multi PCs last week. In contrast to Fannie Mae and Freddie Mac multifamily spreads, Ginnie Mae multifamily MBS credit spreads widened sharply as nearly $800 million in new issuance added supply to an already sluggish sector. Generic PL and CL spreads widened approximately 4–8 basis points week over week.

The week ahead: The FOMC decision on the Fed Funds rate is due this Wednesday at 2:00 PM ET, with the 3.75%–4.00% target range expected to hold. Investors will closely watch Chairman Warsh’s post-meeting remarks for clues to the Fed’s next steps. The Fed’s communications blackout runs through Thursday, and Fed officials Daly and Musalem speak Friday. September Personal Consumption Expenditures (PCE) and the advance Q3 GDP print both land Thursday. Headline PCE is expected at 3.6% YoY (Prev. 3.4%) and core PCE at 3.1% YoY (Prev. 3.0%). Q3 GDP is expected at 3.2% annualized (Prev. 2.2%). A hot PCE print could bring December hike odds closer towards 100%, while a soft one could extend the rally across Treasuries. Treasury auctions are loaded throughout the belly of the curve this week, including $70 billion in 5-year notes Tuesday and $44 billion in 7-year notes Thursday.

Economic Calendar: (Week of 10.26.2026 – 10.30.2026):

10/27: Tuesday

• Sep P: Durable Goods Orders (Est. 1.9%, Prev. -0.1%)
• Week of Oct 10th: ADP Weekly Employment Change (Prev. 18.5K)
• Treasury Auction: $70 billion 5-year notes

10/28: Wednesday

• FOMC Rate Decision, Upper Bound (Est. 4.00%, Prev. 4.00%)
• FOMC Rate Decision, Lower Bound (Est. 3.75%, Prev. 3.75%)

10/29: Thursday

• Sep: PCE Price Index MoM (Est. 0.5%, Prev. 0.3%)
• Sep: PCE Price Index YoY (Est. 3.6%, Prev. 3.4%)
• Sep: Core PCE Price Index MoM (Est. 0.3%, Prev. 0.2%)
• Sep: Core PCE Price Index YoY (Est. 3.1%, Prev. 3.0%)
• 3Q A: GDP Annualized QoQ (Est. 3.2%, Prev. 2.2%)
• 3Q A: Personal Consumption (Est. 3.4%, Prev. 3.8%)
• Sep: Personal Income (Est. 0.3%, Prev. 0.2%)
• Sep: Personal Spending (Est. 0.6%, Prev. 0.9%)
• Week of Oct 24th: Initial Jobless Claims (Est. 198K, Prev. 194K)
• Week of Oct 24th: Initial Claims 4-Wk Moving Avg (Prev. 197.75K)
• Week of Oct 17th: Continuing Claims (Est. 1,721K, Prev. 1,728K)
• Treasury Auction: $44 billion 7-year notes

10/30: Friday

• Fed’s Daly Gives Introductory Remarks
• Fed’s Musalem Delivers Keynote Address