9-29-26: What Do Parabolic Treasury Yields Tell Us?

by Ivan Martchev

September 29, 2026

Stock investors keep hoping the Iran situation is coming to a close – and that hope is what caused a new marginal high in the Nasdaq 100 Index on Tuesday last week – but you can safely say bond investors are an entirely different species. You can almost say they come from a different planet. They kept on selling Treasury bond futures, causing yields to reach a multi-year intraday high on the 10-year note of 5.23%.

Stocks are about a return on capital, and bonds are a return of capital, changing the calculus entirely.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The situation with the Iran war upended global government bond markets, as diesel and other distillates reached all-time highs. An interruption in spot LNG from Qatar caused EU natural gas to reach 10 times the U.S. level. Elevated supply shock inflation and an entrenched deficit are pressuring the U.S. Treasury market, while stock investors are excited about possible 30+% EPS growth for the S&P 500 in 2026.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

I did not think we could make all-time highs in the Nasdaq 100 with interest rates this high, but when you dig under the surface the situation changes quite a bit. The broad market is under pressure because of surging yields, and if you look at the Russell 2000, a former top performer before yields spiked, the performance differential since July 30 this year between the small cap sector and the Nasdaq 100 has widened to 14.6%. Small caps are down 2.03% while mega-cap tech stocks are up 12.56% in 8 weeks.

I have seen this situation before, where large-cap tech runs up while the broad market is under pressure. It can last for a while, but it doesn’t tend to end well. Further rises in Treasury yields are likely to pressure the tech sector, which will not be able to lift the whole market higher, rather than the other way round.

The main question now is: Could Treasury yields rise further?

Last week, after several substantial stock rally attempts, driven by Iran optimism, The Wall Street Journal poured cold water on those simmering truce hopes (see “Trump Rejects Iran Ceasefire, Expects Renewed Bombing After Midterms”). I realize the Trump administration is negotiating on live TV and all that can change on a dime, but if that headline is accurate, further rises in yields cannot be ruled out.

Furthermore, the yield spike has picked up speed, as indicated in my first chart, above.

Also, the MOVE Index (below), a measure of volatility for Treasuries, traded all the way to 105, which is not far away from its 2026 high of 115 (below). That tells me Treasury yields are extended to the upside and they can mean-revert violently lower if we get good news that sticks, like a real truce, but under bad war news scenarios, they may rise further – and that mean reversion can come for higher levels.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The MOVE Index can roughly be called “the VIX for bonds,” as it measures fixed income volatility. The 14.87 VIX close from Friday indicates a roughly 15% annualized expected S&P 500 volatility, which would be acting fairly “calm”, but a MOVE index near 100 expects a roughly 100 basis point expected annualized Treasury yield volatility, indicating the Treasury market being “not so calm.”

Rising troubles in the Treasury market tend to mean rising troubles in the stock market, although right now this is happening with a notable delay. The situation in the Treasury market is beginning to spill into junk bonds. Although their spread to Treasuries is approaching its lowest point over the past two years, they are widening somewhat. Many retail investors do not know there is strong correlation between the total return of junk bonds and the S&P 500 (pictured below), which now suggests a leg lower for equities.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A veteran of the bond market told me many years that non-investment grade credit “reads like a bond but trades like a stock,” indicating bigger volatility than regular investment-grade debt. Now, we not only see investment grade debt volatility picking up as evident by the MOVE index, but also junk bond volatility.

Furthermore, in many cases junk bonds tend to lead the stock market. They tend to weaken before it tops out, and then they tend to lead to the upside when the stock market has bottomed out is about to bottom.  The only reason why the S&P has not adhered to its strong correlation to junk bonds is the tech sector, which is huge but not immune to the selling pressure in the bond market.

September ends this week, and that increases the probability investors will buy into any semblance of positive news, as the fourth quarter is usually strong. Be that as it may, we still need to monitor the Iran situation, which has very big consequences for financial markets. Sharp deterioration on war news flow, particularly after September 30, will likely produce a bigger correction before the November election.

A move to 7,200 or so on the S&P 500 remains a clear possibility in any negative war scenario before the election. After the election, if the Iran negotiations resume, 8,500 is a good target for the end of 2026.