How DeepStack settles a question · Part 15
Can the AI trade survive a 10-year Treasury above 5% and an oil shock at the same time?
From Part 15: Oil Is the Headline. The Real Yield Is the Bill.. 21 voices on 3 sides, attributed and dated; the DeepStack Call with its history; 4 dated tests that settle it; the results as they come in.
The DeepStack callSplit
Oil reaches the AI trade through the Fed and the real yield while inflation expectations stay put. The multiple shrinks; the trade survives.
Our Call takes neither side alone.
Call history
- v2The trade pays the real yieldConviction Moderate (3/5)SynthesisSide named by the owner.
- v1The trade pays the real yieldConviction Moderate (3/5)First call, with the story.
12 voices
The boom pays the rate
Term premia have increased only 29 basis points since late June while implied policy-rate expectations have risen 51 basis points, showing policy-rate expectations account for most of the yield rise.
Falling term premia signal the market is moving toward the next stage of the cycle, Turbulence, which has historically been challenging for risk assets but favourable for government bonds as investors scramble for safe assets.
Conditions appear more likely too hot than too cold, which is the opposite signal from what would be implied if rates were too high, since rates that were too high would curtail activity and push inflation below target.
The interest rate that helps balance the technology and spending boom is not the same rate that keeps a smaller, weaker, or more indebted company happy, so if higher rates are needed to balance things overall, the weaker tails of the market can…
The large single-month jump in wireless telephone services prices does not change the underlying inflation story, since the same commentators who dismissed this reading as unrepresentative did not apply the same logic in reverse when wireless plan…
Matthew C. Klein has been making for years the point that prices most sensitive to domestic demand and least exposed to mismeasurement or other idiosyncrasies have consistently been rising 1-2pp faster than in the years immediately before the…
He attributes rising global and US Treasury bond yields predominantly to a global growth impulse, especially strength in the industrial side of economies worldwide, which is pushing inflation up and leading central banks to be expected to respond.
He states he is genuinely surprised that the stability of breakevens hasn't given way to more doubt about the Fed's ability to maintain stable inflation after years of missing its target.
The main reason for higher inflation is probably the more expensive oil, and a higher interest rate will not cure that; the Fed just wants to ensure inflation doesn't get out of hand.
Interest rate hikes are not currently a problem for the economy or investing, because if the economy and company profits grow faster than the interest rate, value is created, and the estimated Q3 GDP growth of 5.1% plus inflation gives nominal…
Artisan PartnersSecond-quarter 2026 letter
Risk assets performed well, aided by economic strength and AI enthusiasm, while Treasury yields rose due to elevated inflation readings that led to a repricing of monetary policy expectations, and credit markets generated solid returns driven by…
Artisan PartnersSecond-quarter 2026 letter
Treasury yields rose due to elevated inflation readings, which led to a repricing of monetary policy expectations.
14 voices
The two shocks compound
The term premium measures the extra yield investors demand for holding a long-dated bond beyond what expectations for Fed policy alone would justify, making it a key market-based gauge of fiscal sustainability and Fed credibility.
The combination of record diesel crack spreads and rising Treasury yields suggests the bond market is pricing in a broader inflation shock.
The Fed can no longer ignore the shocks; inflation has been above the Fed's two percent target for more than five years due to the pandemic, tariffs, the war, and higher oil prices, though inflation is still heading down, and with the jobs market…
There is a worry that inflation risk is building as people start building higher inflation expectations into wage negotiations and prices, which could lock inflation into the system.
The common theme across Bessent trying to talk rates down, Japan quietly stepping back as a buyer of US debt, and investors demanding a story instead of a spreadsheet is that markets are running on narrative and liquidity rather than fundamentals…
Only two things matter for the market day to day: oil and the Ten Year yield; when they rise, the market falls.
TSCS argues the front end cannot cap the long end: a hike is only about 4/10 of a percent of receipts and mostly lands as income with people who spend it, Treasury buybacks manage volatility rather than level, and the buyers who used to close the…
TSCS argues governments and central banks do not want long yields higher and will go a long way to stop it, which means that if they succeed real yields fall and today's 2.65% over inflation won't be on offer for long, and if the way they succeed…
Interest rates are rising due to inflation and increased competition with Treasuries from more debt issuance (hyperscaler debt, Japan, or elsewhere), and higher rates can be a catalyst for the AI buildout financing chain to come apart.
Beyond the lack of trust, rates are rising so much because of massive price-insensitive demand from hyperscalers, whose projected borrowing is around seven hundred fifty million against roughly two billion issued by the Treasury, approaching thirty…
If the Fed (Warsh) and Treasury (Bessent) can work together in a symbiotic, coordinated manner -- even amid squabbles elsewhere in government -- that is good enough to be seen by investors and foreign governments as the adult in the room, and he…
Harris Associates OakmarkThird-quarter 2026 letter
Heavy new bond issuance from technology hyperscalers investing in AI infrastructure is pressuring bond prices and increasing yields.
Mia Silverio concludes that given persistent inflation (above the Fed's 2% target for 5.5 years, the longest continuous stretch in 40 years), investors should invest more aggressively in stocks and avoid holding cash in checking accounts.
Rising interest rates (the 10-year Treasury yield hit 5.3% in Q3, its highest since 2007, as the Fed raised rates for the first time since 2023) are pressuring stock valuations because investors who can earn 5.3% on a risk-free Treasury demand…
13 voices
Oil stays out of the core
Job growth is weak and housing is soft, and Jim Paulson makes a strong case that the Fed hiked based on rear-view mirror data; DeepValue Capital is not calling for a recession but is not ignoring the risk either.
DeepValue Capital argues rising mortgage rates are already pressuring housing, the largest component (40%) of core CPI, creating big downward pressure on core CPI, while job growth has been weak enough historically to always be associated with…
Kris reports that Bill Ackman raised the thought that higher interest rates may not reduce inflation this time because demand for AI and energy is not affected by higher rates, and Kris says there is something to be said for this.
Core muted; energy a tail risk.
Oil and Iran are driving the inflation narrative, but underlying inflation breadth is muted.
The recent rise in the US 10-year yield has been driven by the real term premium rather than by inflation expectations or rate expectations.
He will not say inflation bulls are deranged and grants that inflation is always a very complex item to forecast with hundreds of variables, but says he sees nothing telling him a pernicious inflationary environment is coming.
If real-time rents and home prices were plugged into the CPI it would be close to zero and core would be well below 2%, and he thinks that will come through with lags because shelter matters far more than energy in the CPI.
Smead Capital ManagementSecond-quarter 2026 letter
Despite recent price volatility, structural supply constraints and geopolitical risk have raised the through-cycle oil price to around $80, which will allow APA Corp's oil holdings, which break even near $40, to generate significant free cash flow…
Oil prices are around $70 a barrel amid fears of demand destruction, but strong crack spreads suggest demand remains robust, and the manager believes the market is misreading the situation similarly to past cycles, expecting higher oil prices…
Aurelion Research is bearish on crude oil and expects WTI around $80 before the end of 2026, arguing China's structurally lower oil imports, more oil moving through Hormuz than headline data shows, and falling crack spreads will let the risk…
Blue Tower Asset Management LLC
Blue Tower Asset Management LLC uses a Société Générale note of June 8th to argue the price response has been mild by historical standards: a 14% loss of global crude supply from the Hormuz closure lifted prices about 30%, against the 1973 embargo…
Blue Tower Asset Management LLC
With the ceasefire and June memorandum of understanding declared over and full-scale fighting resumed, Brent has risen over 15% in the last week, and once global inventory buffers including the drawn-down US strategic petroleum reserve are…
7 voices
Voices that cross sides
The probabilities of yields rising or falling by a similar magnitude appear increasingly balanced, but history suggests the real economy becomes vulnerable as long-term rates approach the 5.5% area, so the next major move in yields may be lower…
Long-term Treasury yields are rising because the US economy is very strong: nominal GDP growth has accelerated, supported by a persistent fiscal deficit of around 6% of GDP and a large wave of AI-related capital expenditure.
Rates are rising for reasons beyond a strong economy: sticky inflation is lifting yields in the front end, record hyperscaler debt issuance is pressuring the belly, and fiscal worries are pushing up the long end.
Because diesel is embedded in the cost of goods broadly, a rise in diesel prices does not stay confined to the energy line of the CPI but migrates with a lag into core goods and services prices, which is the kind of pass-through the Fed cannot…
Nominal growth outruns the rate; the oil inflation is one hikes won't cure.
Current long-term Treasury yields are still low relative to reasonable expectations of inflation and growth, and are only obviously too high if inflation and growth are both set to slow sharply from current levels.
Producer price index (PPI) data show relentlessly stable inflation for core goods and services sold by U.S. businesses to consumers, with prices still rising about 1-2 percentage points faster than in the years immediately preceding the pandemic.
Where they cross
Who answers whom.
The specific points where one voice meets another: the same evidence read two ways, or the same mechanism with a different sign.
Torsten Slok contradicts Michael Howell, on the mechanism
Michael Howell contradicts TSCS, on the mechanism
TSCS contradicts Torsten Slok, on the evidence
Michael Howell qualifies Matthew C. Klein, on the evidence
Michael Howell qualifies TSCS, on the evidence
Torsten Slok qualifies Michael Howell, on the mechanism
Mia Silverio qualifies Michael Howell, on the mechanism
Matthew C. Klein contradicts Michael Howell, on the evidence
Steve Eisman contradicts Matthew C. Klein, on the evidence
Michael Howell contradicts Michael Burry, on the mechanism
Steve Eisman qualifies Michael Howell, on the mechanism
Torsten Slok contradicts Michael Howell, on the evidence
Michael Howell contradicts Torsten Slok, on the mechanism
Torsten Slok qualifies Michael Howell, on the evidence
Artisan Partners qualifies Michael Burry, on the mechanism
Torsten Slok qualifies Kris, on a condition
Torsten Slok qualifies TSCS, on the mechanism
Michael Howell qualifies Artisan Partners, on the mechanism
TSCS contradicts Michael Howell, on the mechanism
Torsten Slok contradicts Michael Howell, on premise
Matthew C. Klein qualifies Artisan Partners, on a condition
Michael Howell qualifies Torsten Slok, on the evidence
Torsten Slok contradicts Artisan Partners, on the mechanism
Torsten Slok contradicts Steve Eisman, on premise
What settles it
The dated tests.
The tests the story set, each with its specification where the owner has written one; on the Docket, resolved on the Results page.
The 10-year: whether FRED's daily series closes at 5.50% or higher on any business day from October 16 through December 31, 2026, after a 5.31% high on October 5.
Part 15: Oil Is the Headline. The Real Yield Is the Bill. Pendingp15-t01Pre-specified
- Question
- Does the 10-year Treasury constant-maturity yield (FRED series DGS10) close at 5.50% or higher on any day from October 16, 2026 through December 31, 2026 for which FRED reports a value?
- Source
- FRED, Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (DGS10), Board of Governors of the Federal Reserve System
- Rule
- Read every daily observation of DGS10 dated October 16, 2026 through December 31, 2026, as FRED shows them on January 5, 2027; the days read are the days for which FRED reports a value. The answer is yes if any of them is 5.50 or higher; no if every one is below 5.50. Intraday highs, other maturities and yields reported in the press are read alongside and do not decide the test.
- If the source is late, revised or silent
- FRED posts each close about one business day later, so the observation for December 31, 2026 is due by January 4, 2027. A weekday FRED leaves blank because the U.S. bond market was closed is not missing and is not read: in this window, Veterans Day (November 11), Thanksgiving (November 26) and Christmas (December 25, 2026), by the holiday schedule of the Securities Industry and Financial Markets Association. Only a weekday on which the bond market was open and FRED still shows no value on January 8, 2027 is missing; if one is, and no observation already in is 5.50 or higher, the test is inconclusive, and the Result says what was read and what was missing; the next reading is January 15, 2027. A close FRED revises before the reading is read as revised; a later revision does not reopen the test.
The Call, before the dateExpects no. Gives the yes answer 35%.
0 · no100 · yes
The barrel: whether the EIA's January outlook puts Brent's fourth-quarter 2026 average above the $105 a barrel it forecast on October 6, 2026.
Part 15: Oil Is the Headline. The Real Yield Is the Bill. Pendingp15-t02Pre-specified
- Question
- Does the U.S. Energy Information Administration's Short-Term Energy Outlook of January 2027 put the average Brent crude oil spot price for the fourth quarter of 2026 above $105 a barrel?
- Source
- U.S. Energy Information Administration, Short-Term Energy Outlook, January 2027 release (energy prices table, quarterly Brent spot average), scheduled for January 12, 2027
- Rule
- Read the fourth-quarter 2026 Brent spot average, in dollars per barrel, from the energy prices table of the January 2027 Short-Term Energy Outlook, where the quarter is history. The answer is yes if it is above $105.00; no if it is $105.00 or below. The outlook's forecasts for 2027, futures prices and prices reported in the press are read alongside and do not decide the test.
- If the source is late, revised or silent
- The EIA schedules the January outlook for January 12, 2027. If it is not published by January 19, 2027, or its energy prices table does not give the fourth quarter of 2026, the test is inconclusive, and the Result says what was read and what was missing; the next reading is the February outlook, scheduled for February 9, 2027, which also carries the quarter as history. Figures are read as first published in the release read.
The Call, before the dateExpects yes. Gives the yes answer 60%.
0 · no100 · yes
Expectations: whether FRED's 5-year, 5-year forward inflation rate averages above 2.60% in March 2027, from 2.32% on October 9, 2026.
Part 15: Oil Is the Headline. The Real Yield Is the Bill. Pendingp15-t03Pre-specified
- Question
- Does the 5-year, 5-year forward inflation expectation rate (FRED series T5YIFR) average more than 2.60% over the days of March 2027 for which FRED reports a value?
- Source
- FRED, 5-Year, 5-Year Forward Inflation Expectation Rate (T5YIFR), Federal Reserve Bank of St. Louis
- Rule
- Average the daily observations of T5YIFR dated March 1 through March 31, 2027 for which FRED reports a value, as FRED shows them on April 1, 2027, rounded to two decimals. The answer is yes if the average is above 2.60; no if it is 2.60 or below. The 10-year breakeven (T10YIE), surveys of inflation expectations and readings outside March are read alongside and do not decide the test.
- If the source is late, revised or silent
- FRED posts the series about one business day later, so the observation for March 31, 2027 is due by April 1, 2027. A weekday FRED leaves blank because the U.S. bond market was closed is not missing and is left out of the average. Good Friday, March 26, 2027, is expected to be such a day: not a federal holiday, but a bond market close on the holiday schedule of the Securities Industry and Financial Markets Association, which FRED left blank in 2024 and 2025; the Result names every weekday left blank and why. Only a weekday of March on which the bond market was open and FRED still shows no value on April 8, 2027 is missing; if one is, the test is inconclusive, and the Result says what was read and what was missing; the next reading is April 15, 2027. Observations FRED revises before the reading are read as revised; a later revision does not reopen the test.
The Call, before the dateExpects no. Gives the yes answer 15%.
0 · no100 · yes
The trade: whether the Thrift Savings Plan's C Fund, an S&P 500 index fund, closes 10% or more below its highest close since October 16, 2026, on any day through March 31, 2027.
Part 15: Oil Is the Headline. The Real Yield Is the Bill. Pendingp15-t04Pre-specified
- Question
- Does the C Fund of the Thrift Savings Plan, the federal employees' S&P 500 index fund, close at or below 90% of its highest closing share price since October 16, 2026, on any business day from October 16, 2026 through March 31, 2027?
- Source
- Thrift Savings Plan, share price history of the C Fund (daily closing share prices, tsp.gov)
- Rule
- Read the C Fund's daily share prices from October 16, 2026 through March 31, 2027 in the plan's share price history. For each day, take the highest price from October 16, 2026 through that day. The answer is yes if on any day the price is at or below 90% of that running high; no if it never is. The fund holds the stocks of the S&P 500 and reinvests their dividends, so its share price is the record the test reads; the index itself and the plan's other funds are read alongside and do not decide the test.
- If the source is late, revised or silent
- If the plan has not posted the prices through March 31, 2027 by April 7, 2027, the test is inconclusive, and the Result says what was read and what was missing; the next reading is April 14, 2027. A price the plan corrects is read as corrected.
The Call, before the dateExpects no. Gives the yes answer 40%.
0 · no100 · yes
What changed
The record of Part 15.
The Part’s publication, every change to the Call, every result that came in and the next dated test, oldest first.
- PublishedPart 15 published; the Call: The trade pays the real yield.
- Call updatedThe Call: The trade pays the real yield. Oil reaches the AI trade through the Fed and the real yield while inflation expectations stay put. The multiple shrinks; the trade survives. Our Call takes neither side alone. by Marco Cauduro
- Next testNext: Dec 31, 2026, The 10-year: whether FRED's daily series closes at 5.50% or higher on any business day from October 16 through December 31, 2026, after a 5.31% high on October 5. Pre-specified
Sources (27)
- Federal Reserve Bank of St. Louis, FRED - 10-year Treasury constant maturity (DGS10)
- FRED - Federal funds target range, upper limit (DFEDTARU)
- U.S. Energy Information Administration via FRED - U.S. No. 2 diesel retail price (GASDESW)
- U.S. Energy Information Administration - Short-Term Energy Outlook, October 6, 2026
- Kris, Potential Multibaggers - The End Of An Era
- Matthew C. Klein, The Overshoot - Rising Bond Yields Are Good, Actually
- Torsten Slok, Apollo - Recent Rates Volatility: Risks and Opportunities in Credit
- Torsten Slok, Apollo - The Diesel Shock Is a Core Inflation Shock
- Torsten Slok, Apollo - From a Savings Glut to a Savings Shortage
- Mia Silverio, Prof G Markets - Americans are turning on AI
- Daniel Romero, HyperTech Invest - The Math Behind the Next AI Rally
- Kira Thornton, Variant Perception - Growth softer, tails wider
- Matthew C. Klein, The Overshoot - Just Waiting for Disinflation is Not Enough
- FRED - 10-year Treasury inflation-indexed yield (DFII10)
- FRED - 10-year breakeven inflation rate (T10YIE)
- FRED - 5-year, 5-year forward inflation expectation rate (T5YIFR)
- Hugh Vuillier, Variant Perception - Politics Trumps Economics: Macro Snapshot
- Michael W. Green, Yes, I Give a Fig - Great, Scott...
- FRED - Term premium on a 10-year zero-coupon bond, Kim-Wright (THREEFYTP10)
- Torsten Slok, Apollo - Are Rates Peaking Within the Next Month?
- Board of Governors of the Federal Reserve System - FOMC meeting calendars
- Alphabet - Date of third quarter 2026 results
- Microsoft - Quarterly earnings release date
- U.S. Bureau of Economic Analysis - Release schedule
- U.S. Bureau of Labor Statistics - Consumer Price Index release schedule
- Thrift Savings Plan - Share price history
- Torsten Slok, Apollo - Think Six Months Ahead
Market data are as of the dates cited. Voices are paraphrased from public writing and attributed by name.
Analysis and opinion, not investment advice. Voices are paraphrased from public writing and attributed by name; DeepStack shows no score, ranking or accuracy for any person. Every question, one page each.