Morning Bid: Storm brewing

• US Treasury auctions continue with 3-year notes reaching their highest rates in 20 years; 10-year and 30-year sales scheduled for Wednesday and Thursday amid elevated term premiums of 96 basis points
• French government debt risk premiums versus Germany widened to 15-year highs in September as the country struggles with annual deficits exceeding 5% of GDP, with far-right candidate Marine Le Pen now favored to win April's presidential election
• Federal Reserve meeting minutes from September's decision to lift rates for the first time in three years will be released Wednesday, while Atlanta Fed's GDPNow model shows economic growth forecast at 3.7%

Market Summary: Rising Yields and Political Risks Weigh on Markets

Key Market Developments:

The S&P 500 and Nasdaq both reached record highs on Tuesday, marking the S&P's first peak in approximately six weeks as Q3 earnings season begins. Consensus forecasts project a robust 30% annual profit expansion for the July-September period, driven primarily by AI-related gains.

Treasury Market Pressures:

Treasury yields remain elevated as the U.S. navigates a heavy week of debt auctions. Tuesday's 3-year note auction proceeded smoothly, but rates hit their highest levels in 20 years. The 10-year and 30-year auctions follow this week. Significantly, the New York Fed's 10-year Treasury "term premium"—reflecting investor uncertainty about holding long-term debt—climbed to 96 basis points, its highest in 12 years.

Economic Indicators:

The Atlanta Fed's GDPNow model revised down to 3.7% from 5.1%, partly due to mechanical adjustments from August trade data. The Fed will release minutes from its September meeting on Wednesday, providing insight into its first rate hike decision in three years.

European Political Risk:

French government debt markets face significant stress, with 10-year borrowing costs rising 68 basis points in September—the widest spread versus Germany in 15 years. Far-right candidate Marine Le Pen is now favored to win France's April presidential election, raising concerns about the country's 5%+ GDP deficit. The turmoil has spillover effects on Belgian, Italian, and Greek debt markets, reviving fears of a euro crisis reminiscent of 2010-2012.

Market Implications:

Rising term premiums and political uncertainty in Europe pose headwinds despite strong earnings expectations and robust U.S. economic growth driven by AI investments.