The government fired at triple strength and the bond market shrugged. Now PPI and CPI carry it all.
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The Buyback Just Failed
The Treasury Tripled Its Buyback. Yields Went Up Anyway.
The one tool meant to cap your borrowing costs just failed its first real test. Now only the inflation data can cool things down.
Oil broke $100. The 10-year hit a three-year high. And the government’s bond backstop fired at triple strength and missed. That leaves this morning’s producer prices, and tomorrow’s CPI, holding the whole story.
Key Idea
Yesterday we asked one question: could the Treasury’s buyback beat $100 oil? We got the answer. No. The government tripled the size of the operation to $6 billion, far bigger than promised. Long-term yields rose anyway. The 10-year closed at a three-year high. That matters more than it sounds. For a month, the market assumed Washington had a lever to hold rates down. It just pulled that lever hard, and nothing happened. So the safety net is gone. Now it is only you, the inflation data, and a Fed six days away.
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The Backstop Missed
The first supersized buyback ran yesterday. The Treasury did not just double it. It tripled it, to $6 billion, buying 10-to-20-year bonds. That is three times its old operation. Long-term yields still rose. The 10-year note closed near 4.85 percent, its highest since 2023.
Why did a bigger buyback fail? Two reasons. Some traders wanted it even bigger, near $8 billion. And the forces lifting yields are bigger than any buyback: deficits, heavy borrowing, and inflation fear. $6 billion is a pebble against all of that.
The takeaway is simple. Washington can send a signal. It cannot set the long-term rate by itself.
Why did a bigger buyback fail? Two reasons. Some traders wanted it even bigger, near $8 billion. And the forces lifting yields are bigger than any buyback: deficits, heavy borrowing, and inflation fear. $6 billion is a pebble against all of that.
The takeaway is simple. Washington can send a signal. It cannot set the long-term rate by itself.
Oil Broke $100
Oil did not just test $100. It broke through. Brent, the global benchmark, settled near $101, up more than 3 percent on the day. WTI, the US grade, reached about $96. Both sit at their highest since spring.
The trigger was more war. The US struck five Iranian oil tankers, up from three over the weekend. Iran says it will not back down. Crude is up roughly 25 percent in a month. Gas is the highest it has ever been for early September.
Higher oil is not just a pump problem. It feeds shipping, food, and factories, and it lands in tomorrow’s inflation math.
The trigger was more war. The US struck five Iranian oil tankers, up from three over the weekend. Iran says it will not back down. Crude is up roughly 25 percent in a month. Gas is the highest it has ever been for early September.
Higher oil is not just a pump problem. It feeds shipping, food, and factories, and it lands in tomorrow’s inflation math.
Now The Data Decides
With no backstop left, the data runs the show. Producer prices hit this morning at 8:30. That is the PPI, a preview of inflation before it reaches you. Consumer prices, the CPI, follow tomorrow at the same hour.
These are the last two inflation reads before the Fed decides on September 16. Wholesale prices already run near 4.7 percent over the past year. Add oil over $100, and a rate increase gets easier to defend. Cool numbers would buy the Fed room to wait.
One more test tonight. Oracle reports after the close, a bellwether for whether the AI spending boom still has willing lenders.
These are the last two inflation reads before the Fed decides on September 16. Wholesale prices already run near 4.7 percent over the past year. Add oil over $100, and a rate increase gets easier to defend. Cool numbers would buy the Fed room to wait.
One more test tonight. Oracle reports after the close, a bellwether for whether the AI spending boom still has willing lenders.
Two Extremes That Can’t Coexist
Here is something odd worth sitting with. Stocks have fallen three days but have not truly cracked. Equity sentiment is still calm, near an extreme of comfort. Yet the bond market is screaming, with yields at three-year highs and rate-hike bets stacking up. A veteran strategist put it plainly this week: those two moods should not be able to live together. One of them is wrong. Either stocks are too relaxed about higher rates, or bonds are crying wolf. When the two split like this, history usually sides with the bond market. So the bigger risk is that stocks fall to meet the bonds, not that bonds rally to meet the stocks. Watch which one blinks first.
Three Ways Today Breaks
Base
Stocks stay heavy after three down days. PPI sets the morning tone. Watch the 10-year at 4.85 percent. A hot print that pushes it through is the signal to trim risk. Energy leads: own XLE, the energy-sector fund, plus the oil majors Exxon and Chevron. Defense stays bid: Lockheed Martin and RTX. Keep cash in SGOV, a T-bill fund near 3.7%, ready for CPI tomorrow. Do not chase.
Upside
PPI comes in soft and CPI cools tomorrow. Yields finally back off 4.85 percent on their own, no buyback needed. The names that hate high rates run: QQQ, the Nasdaq-100 fund, small caps through IWM, and homebuilders through XHB. Oracle beats after the close and steadies the AI trade, lifting the chip fund SMH. The three-day slide reverses. Add on the relief, not before it.
Risk
PPI runs hot today and CPI runs hot tomorrow. With the buyback proven toothless, the 10-year pushes toward 5 percent and a September 16 hike becomes the base case. Growth cracks: a 3 to 5 percent Nasdaq pullback, more if Oracle disappoints tonight and drags the AI names. Long bonds through TLT, the 20-year Treasury fund, fall further. Here is what is different. The market can no longer count on the Treasury to cap yields, so hot data now hits unfiltered. But sentiment is stretched both ways, and one cool print could snap it back hard. Size a hedge. Do not press bets into two binary mornings.
Our View
Step back. Yesterday we told you to watch the 30-year during the buyback for the answer. Here it is: the government fired at triple strength and the bond market shrugged. That is the real headline. The cushion everyone leaned on is thinner than they thought. So the next two mornings carry the whole load. PPI today. CPI tomorrow. Both feed straight into the Fed on the 16th, with no buyback to soften the blow. Do not guess the prints. Prepare for both. Barbell it. Energy and defense for the oil premium. Short-term cash and T-bills for the rate risk. Keep some dry powder for tomorrow, because if CPI is cool, stretched nerves can snap back fast. The safety net just tore. Trade like it. See you before the bell tomorrow.