Buyers Took the 10-Year at 5.3% | Private-Credit Investors Line Up to Exit | Small Caps Near a Correction

2.5%

The share of Wednesday's 10-year sale left to dealers. That is about a quarter of their usual share.

The S&P 500 slipped 0.2% a day after its record.

The 10-year yield ended near 5.28%, off its morning high. Kalshi's October rate-hike contract held at 17 cents after the Fed released its minutes. Black Hills (BKH) rose about 7%. It plans to build $1.8 billion of gas plants for a Google data center. Bitcoin was below $84,000 late in the day.

Buyers Took $39 Billion of 10-Year Notes at 5.3%. The Fed's Minutes List AI Borrowing as One Possible Reason Rates Got There.

The 10-year yield hit its highest since 2002 early in the session. Then the Treasury sold $39 billion of 10-year notes at 5.3%. Dealers were left with just 2.5%. Indirect bidders, a group that includes foreign official buyers, took about 80%. The yield then eased.

So the buyers PMD asked about last night showed up. They were paid for it, though. The sale cleared almost half a point above September's.

The Fed's minutes, out an hour later, help explain why. Most officials expected another hike "by year end." A couple had raised their estimate of the neutral rate. A few listed "increased expectations for AI-related borrowing" among possible reasons long yields rose. The Fed's markets desk said spreads on hyperscaler debt "remained wide, given the large volume of issuance."

The desk also cited market talk of "competition for capital" from heavy AI borrowing. About $30 billion of the roughly $40 billion SpaceX is seeking would be investment-grade debt. Insurers and pension funds could buy it. Those are the same long-term buyers the Treasury relies on. Talks are early and could end without a deal.

Buyers Came. They Charged More.

Wednesday showed buyers will lend long at about 5.3%. If AI borrowers keep competing for it while the Fed leans toward hikes, long rates may stay up. Thursday's $22 billion 30-year sale tests whether the demand reaches the longest bonds.

SIGNAL 1: Private-Credit Investors Asked for Twice What the Fund Would Pay Out. Buyout Firms Still Want Into 401(k)s.

Barings Private Credit Corp. filled less than half of its redemption requests for a third straight quarter. Investors asked to cash out more than 10% of shares. The cap is 5%. Late last year, it paid every request in full. Holders of Partners Group's listed private equity fund voted to wind it down. The first cash is expected next March.

Getting out now costs time or price. Nasdaq Fund Secondaries and LODAS Markets ran an auction for shares of interval funds, which allow exits only at set times. Some trades cleared at a 15% discount to net asset value. Fed staff noted that direct lending slowed in July "amid subdued retail interest but resilient institutional demand."

Yet the industry wants more retail money. The Supreme Court heard a 401(k) case Tuesday. A win for Intel would lower the legal risk of offering private funds. The justices seemed skeptical of the challenge.

Getting In Is Easy. Getting Out Takes a Queue.

Funds with quarterly exits work until many holders want out at once. Then the cap holds, and the way out runs through a discount. If 401(k)s open to private funds, workers would face the same wait.

SIGNAL 2: Small Caps Are Near a Correction and Transports Near a Bear Market. Mortgage Rates Hit 7.49%.

The S&P 500 barely moved, but the Russell 2000 fell about 1.3% to its lowest since May. It closed about 1% above a correction, a 10% fall from its peak. The Dow transports closed about 2% above a bear market.

Households feel it too. The average 30-year mortgage rate rose to 7.49%, the highest in almost three years. On a $400,000 loan, one week's rise added about $52 a month. Applications fell for a fifth week, and homebuilder shares touched a 52-week low.

A few Fed officials said financial conditions in housing "did not appear supportive of activity." Garrett Melson of Natixis Investment Managers Solutions ties the weakness in small companies, real estate and utilities to the 10-year's climb from about 4% in early March. Options traders are calm, though. The volatility index ended near 15.

The Record Sits on Top. The Strain Sits Underneath.

The index can hold up while the stocks that lean on borrowing weaken, as Wednesday showed. If the 10-year stays near 5.3%, small firms, transport companies and home buyers keep paying it. Calm options pricing says traders don't yet expect the strain to spread.

SIGNAL 3: Bitcoin Hit Its Low for October and Stayed Down When Yields Eased.

Bitcoin hit its lowest level of October. When yields eased after the auction, bitcoin did not follow. Strategy (MSTR), which holds bitcoin as its main asset, closed down almost 7%. Ether fell more than 4%. Its biggest corporate buyer said it would stop buying once it holds 5% of all ether.

Bets are shrinking. Open interest in bitcoin futures is down about 10% since late September. Firms built to hold crypto tend to fall faster than the coins, and many carry debt.

Bitcoin Fell With Rising Yields. It Didn't Rise When They Fell.

Bitcoin has rallied before when rates fell. Now the Fed leans toward hikes, and spot demand is weak, so fewer buyers wait below. The firms that hold it would feel the next drop most.

• Thursday: $22 billion of 30-year bonds at 1 p.m. Freddie Mac's weekly mortgage rate.
• Oct. 14: September consumer prices.
• Oct. 27-28: Fed meeting.

Wednesday's 5.3% is what buyers charged to lend for 10 years, not a number set in a model. Long debt priced off an older, lower rate carries a gap. For a fund with quarterly exits, the cap says what it may pay out. Last quarter's fill rate says what it did.

This morning's question was what AI money costs. Wednesday put a number on long money, and the Fed listed AI borrowing among possible reasons it rose. The strain shows up below the index, in small firms, home buyers, crypto and private funds.