Safe Haven of the Year: Acceptance Remarks of the 10-Year Treasury Note, Delivered at 5.09%

Transcript of remarks at the annual dinner of the Society for the Preservation of Duration Risk. Applause omitted. There wasn't much.

Thank you. Please, sit. Half of you are standing because you're still nursing Wednesday, and I understand. That morning I spiked to nearly 5.33% on a CPI that printed 3.7%, and a room very much like this one started calculating how many Octobers it takes to forgive a 0.6% monthly jump in the price of everything.

Then Thursday arrived, and I'd like to thank the Bureau of Labor Statistics, because Thursday opened with producer prices. Headline PPI rose 1.3% in September, the biggest monthly gain since March 2022. Core, ex food and energy, rose 0.7% against a 0.3% forecast. Annual headline hit 6.3%, core 5.0%. Airfares alone climbed 5% in a month as diesel crawled into the jet-fuel invoice. Retail sales added 0.8% against 0.3% expected, so the American consumer, bless him, is still paying. By every textbook I own, this is the morning I get sold.

I fell roughly ten basis points instead. I closed at 5.09%. The 30-year dropped about ten as well, to 5.43%. I have to say, in front of this room, that I did nothing to earn it.

So who bought me? Not someone worried about inflation. Check the deflator. Against producer prices my real yield is minus 1.2%. Against consumer prices it's plus 1.4%. Pick your deflator, pick your delusion. The buyers weren't doing that arithmetic. They were staring at the Philadelphia semiconductor index, on course for an eighth straight losing session, a streak not seen since October 2008, and at a CoreWeave credit default swap that priced roughly 60% odds of default within five years, a record. Its 9% notes changed hands around 80.75 cents on the dollar, yielding about 15.3%. The stock itself closed up 5.9% at $69.69, a day after losing 15%, once Jensen Huang told a Bloomberg audience in Stockholm that the company's cost of capital was falling. The paper kept sliding anyway.

Equity is a vote. Credit is a ledger. Only one of them has to be repaid, and you'll notice which one didn't bounce.

Look at who got hurt. Vertiv fell more than 6%. It and five other builders of the physical layer (Comfort Systems, Quanta, GE Vernova, Eaton, EMCOR) have shed about $94 billion since October 6, $23 billion of it on Thursday. Microsoft, Amazon and Alphabet held steady to higher. The spenders are fine. The people the spenders pay are being repriced for the chance that the spending collides with the price of money. Apple crossed $5 trillion again, helped along by the minor virtue of not building data centers. Staples are up nearly 9% in October. Lennar jumped 5% because I got cheaper. This is a market that stopped asking who has the best story and started asking who has to refinance.

A Macquarie rates strategist laid out the mechanism with admirable bluntness: if AI spending decelerates, US growth stops outrunning its developed-market peers, the dollar softens, and yields fall across the curve. Which means I'm being bought as an AI put, by people who are long the thing I'm supposed to insure.

And then, as I was closing, a man in Bangkok. Late Thursday in New York, Kevin Warsh sat down with Kristalina Georgieva and declined to say a word about October. "We're not in that business anymore" is his forward-guidance doctrine in seven words. He noted that central banks have tightened in synchrony, with no free riders. He called AI the most important upside force in the global economy and warned the road would be very bumpy. While he spoke, the pricing of an October hike slid from about 30% to about 17%. CME had it at 34% after the PPI. A Fed chair told a room nothing and the market heard a pause. I've been interpreting silence since Greenspan, and I can tell you it's the most expensive language in finance.

Here's the part nobody wants at an awards dinner. I sit 109 basis points above the top of the funds range, which is 3.75% to 4.00%. That gap is the market's wager that Warsh keeps hiking, or that someone will be sorry. Now hold two beliefs at once. Warsh's: AI lifts productivity and eventually cools prices. The tape's: AI balance sheets crack and drag growth down with them. Both roads end with me yielding less. The road that ends badly for me is the third one, where neither happens. Energy keeps feeding the producer-price index, the consumer keeps swiping, the chip complex wobbles but funds itself, and a committee meeting October 27 and 28, with the PCE data arriving the day after the decision and the midterms on November 3, hikes into a fog. On that road I go back to 5.3% and change, and everyone who bought me this week as insurance discovers they were long a call on a bust that didn't show up.

I accept this award on behalf of the Treasury's issuance calendar, which will be here Monday as always. A safe haven is whatever the market agrees to flee into this week. Gold held the job until it lost a quarter of its January record. Don't confuse the address with the architecture.

Goodnight. Mind the coat check. The Nasdaq left in a hurry, and it's up 0.08% on the day, so it won't admit why.