Bonds hit 2002. Buyers showed up.

Good morning. The 10-year Treasury yield touched 5.365% Wednesday, its highest since April 2002, before a $39 billion 10-year note sale drew unusually strong demand and helped pull it back to a 5.28% close (CNBC; TreasuryDirect; US Treasury). The S&P 500 slipped 0.2% from its record, and Caterpillar alone accounted for 86% of the Dow's 341-point drop (AP; our math from exchange closes). Overnight, Brent crude jumped 4% to $104, the 10-year yield climbed back to 5.33%, and stock futures slipped, with Dow futures down 0.6% (Yahoo Finance; CNBC).

Stocks, VIX and yields are Wednesday's close. Futures and oil as of ~3:45 AM ET Thursday vs. Wednesday's settle. Crypto as of ~3:57 AM ET Thursday, vs. its 24-hour open. Nikkei is Thursday's close. Stoxx 600 is Thursday, live at ~3:40 AM ET, vs. Wednesday's close.

One-line read: Oil is up 4% overnight and yields are climbing again, so futures point lower; Tokyo closed down 1.4% and Europe is off about 1%.

The 10-year Treasury yield hit 5.365% Wednesday morning, its highest since April 2002, and the 30-year reached 5.732%, a level last seen in May 2002 (CNBC). Then Treasury sold $39 billion of 10-year notes, buyers lined up, and yields eased into the close (TreasuryDirect; Reuters).

The numbers: The auction cleared at 5.300%, the highest 10-year auction yield since November 2000 and up from 4.834% in September (TreasuryDirect). Bids totaled 2.77 times the amount sold, versus 2.71 last month. Indirect bidders (big buyers who bid through a dealer, a group that includes many foreign investors) took 80.3%. Primary dealers, the banks expected to bid at every auction, were left with 2.5%, the smallest share in TreasuryDirect's 10-year records back to 2008 (TreasuryDirect; New York Fed; Barron's). The 10-year closed at 5.28%, up 1 bp, and the 30-year closed at 5.67%, up 3 bp and its highest close since July 2002 (US Treasury; FRED). Stocks gave back a little: the S&P 500 fell 0.2% to 7,801.77 and the Dow fell 0.7%, snapping four-day winning streaks; the Nasdaq slipped 0.2%, its first loss in six sessions (AP; Reuters). Smaller companies took the bigger hit, with the Russell 2000 down 1.3% (AP). Overnight, the selling came back as oil jumped: by about 4 AM ET the 10-year was at 5.33%, up 6 bp, and the 30-year at 5.72%, up 6 bp (CNBC).

Why it matters: Mortgages price off these yields. The Mortgage Bankers Association's 30-year contract rate jumped to 7.49% last week from 7.30%, its highest in almost three years, and refinance applications fell 8% (MBA). Freddie Mac's average was 7.28%, the highest since November 2023, and its new reading lands at noon today (Freddie Mac via FRED). If you own a bond fund, yields at 24-year highs mean lower prices on the bonds it already holds, and more income on the ones it buys next. Washington paid its highest 10-year rate since 2000. The line still went around the block.

What to watch: Treasury's $22 billion 30-year bond sale at 1 PM ET today, with the 30-year yield already back above 5.7% (TreasuryDirect; CNBC).

Minutes of the Sep 15–16 meeting, where the Fed raised rates for the first time since July 2023, say "most participants assessed that another increase" in rates "would likely be appropriate by year end" (Federal Reserve; Reuters). "Several" called today's 3.75%–4.00% range "not restrictive or only mildly restrictive." Officials named oil and fuel prices and "surging AI-related investments" as inflation pressures, and said core goods prices stayed elevated "as effects of the AI buildout appeared to increase while the effects of tariff increases waned" (Federal Reserve). Traders aren't betting on October: CME FedWatch put the odds of a hike at the Oct 27–28 meeting at 21.6% as of 3:49 AM ET Thursday, but 86.6% odds of at least one by the December meeting (CME FedWatch). Governor Waller was set to speak on the outlook at 4:30 AM ET, after this issue's deadline (Fed).

Why it matters: The Fed's rate drives what your money-market fund and high-yield savings account pay. One more hike is the base case inside the Fed. The timing is up to the data, starting with September CPI next Wednesday (BLS).

Caterpillar fell 5.7% to $813.83, its biggest drop since late July and the worst performer in the Dow (WSJ; Yahoo Finance). The shares are 24% below their June 30 record close near $1,065 but still up nearly 42% this year (WSJ). Industrials were the day's weakest sector, with the industrials fund XLI down 2.2% (Reuters; Yahoo Finance). Farm-machinery makers fell harder after the FTC and USDA opened a joint public inquiry into possible anticompetitive conduct in how farm equipment is made, sold and serviced: Deere fell 3.8%, CNH 6.1% and AGCO 6.1% (FTC; Yahoo Finance).

Why it matters: The Dow weights stocks by share price, not company size, so an $814 stock moves it far more than a $34 one (see the chart). If you own an S&P 500 fund, Wednesday was a 0.2% dip. The equal-weight S&P 500 fund RSP fell 0.8%, so the average stock had a rougher day than the index (Yahoo Finance).

WTI settled down 1.3% at $88.28, its lowest settle since Aug. 31, and Brent fell 0.4% to $100.20 (Dow Jones Market Data; Reuters). The trigger: the International Energy Agency's members agreed to speed up stock releases already pledged, about 100 million barrels, with diesel first (IEA; Reuters). Overnight, Brent rose 4.0% to $104.16 and WTI 3.9% to $91.68 (Yahoo Finance) after reports that the White House asked the Pentagon for Iran strike options that could be used before next month's midterms (The Atlantic via Bloomberg; NBC News via CNBC), with attacks on tankers in the Gulf running at their highest since the Iran war began (Reuters). Closer to home, Isaias became a hurricane overnight, with 75 mph winds and more strengthening expected; a hurricane warning runs from Ocean Springs, Miss., to the Florida Panhandle, with landfall expected late Friday or early Saturday (National Hurricane Center). Operators had shut in about 25% of Gulf oil output by Wednesday (Marine Minerals Administration via Reuters). Tokyo's Nikkei closed down 1.4% Thursday and South Korea's Kospi 2.6%, and Europe's Stoxx 600 was down 0.9% in early trading (Yahoo Finance).

Why it matters: The Fed's minutes named energy as an inflation risk, so oil feeds straight into the rate outlook. It also shows up at the pump and in airline tickets.

Caterpillar did 86% of the Dow's damage. For context, the Dow fell 341 points Wednesday, and Caterpillar's $49.61 drop was worth about 295 of them, because every $1 move in a Dow stock is worth about 5.9 index points right now (our math from exchange closes). Notice the bottom bar: without Caterpillar, the Dow would have fallen about 47 points, or 0.09%, roughly in line with the S&P 500's dip.

Source: exchange closing prices via Yahoo Finance, Oct 6–7, 2026; Dow close per AP. Points = price change ÷ Dow divisor (≈0.1683, implied from closes).

The US government borrows by auctioning bonds on a set calendar (TreasuryDirect). Buyers bid the lowest yield they'll accept, and the highest yield needed to sell the whole amount sets the rate for everyone: Wednesday, that was 5.300% (TreasuryDirect). Primary dealers are big banks expected to bid at every auction, so they act as a backstop and take whatever end buyers don't (New York Fed). When dealers end up with a sliver, outside demand was strong. Wednesday they got 2.5%, against 4.3% in September and 7.8% in July (TreasuryDirect). Today's test is the $22 billion 30-year sale at 1 PM ET. The backstop barely had to show up for work.

That's the desk. See you tomorrow at 6 AM ET.

— The Overnight Desk Team

Note: The Overnight Desk Team may hold positions in assets discussed. Nothing here is investment advice. · Sponsor: No one paid for any mention in this issue.