Bond rout peaks, then reverses, but the unease stays

Good morning. The 10-year Treasury yield briefly hit 5.34% yesterday, a 24-year high. Then buyers suddenly stepped in late in the day and yields pulled back. Even so, the third quarter went down as the worst quarter for Treasuries since 1994.

The selling wasn't just an American story. Worries about inflation and government debt pushed yields in the US, Germany, Japan and the UK to multi-decade highs at the same time, and France, which unveiled a spending-cut budget, was singled out as ground zero. The Wall Street Journal said the rebound in bonds came partly from hedge funds unwinding crowded trades, and warned of a faint smell of crisis in the making.

Stocks were surprisingly calm. The S&P 500 gained 0.23% and the Nasdaq barely budged. Micron's strong results and upbeat outlook supported chip stocks, and Fed officials signaling no rush for another hike in October gave markets room to breathe. Still, many point out that beneath a near-record index, most stocks are weak. Bond king Jeffrey Gundlach compared the market to a hollow tree that could snap.

Then there's the fuel story. This inflation scare is less about crude and more about refined products like diesel. About a third of the world's diesel export supply has been disrupted by war, and Putin said Russia won't supply diesel until sanctions are lifted. When diesel gets pricier, food and clothing get pricier, too.