Treasury Supply-Cut Signal Falls Flat, Oil Spikes Intraday as AI Chip Slump and Fiscal Deficit Pressures Collide

On Oct. 16, US markets repeatedly weighed three main threads: fiscal supply, energy sanctions and AI valuations. The Treasury did not release a clear signal on cutting long-term Treasury issuance, and long-end yields moved higher again; a Russian diesel waiver faced bipartisan congressional pushback, lifting oil prices intraday; chip stocks extended their weakness. Meanwhile, the fiscal 2026 deficit and service-sector price pressures reminded investors that inflation and fiscal constraints are still not far away.

Long-Term Supply-Cut Expectations Dashed, 10-Year Yield Back at 5.12%

The US Treasury's primary dealer survey, prepared for the Nov. 4 quarterly refunding plan, did not clearly hint at an imminent reduction in long-term Treasury auction sizes. After the survey was published, the 10-year benchmark Treasury yield rose back to 5.12%, with the intraday increase widening again to 6.5 basis points; 20-year and 30-year yields also rose in tandem, while higher oil prices added pressure on yields. The market had focused on whether the Treasury would reduce or even halt 20-year issuance, but the questionnaire only broadly asked which auction size adjustments should be considered in the future. TD Securities strategists expect long-term auction sizes may not be adjusted until February 2027 at the earliest, while Citi still expects the November announcement to cut 20-year and 30-year issuance by $3 billion each. ^[2]

Russian Diesel Waiver Blocked in Congress, Oil Prices Spike Intraday

On Oct. 16, Gregory Meeks, the top Democrat on the House Foreign Affairs Committee, introduced the bipartisan-backed 'Russian Oil Transactions Prohibited for Corruption Act', which would revoke general licenses related to Russian diesel previously issued by the Treasury's Office of Foreign Assets Control, including General License No. 135, and prohibit future waivers, while requiring sanctions on entities involved in Russian oil and gas extraction, refining, production and maritime transportation. After the news, WTI crude futures approached $100.90 a barrel, up nearly 3% intraday; Brent crude futures approached $109.60 a barrel, up nearly 3.5% intraday. In the Senate this week, 12 senators, including six Republicans, sent a letter to Trump urging him to rescind the agreement, showing that the opposition camp is broadening across party lines. ^[4]

Philadelphia Semiconductor Index Falls for Eighth Straight Session as Jensen Huang Urges Return to Fundamentals

As the AI infrastructure boom faces a test of confidence, the Philadelphia Semiconductor Index fell for an eighth consecutive trading session, its longest losing streak since 2008; Nvidia shares fell in seven of the past eight sessions. CoreWeave, a representative AI infrastructure company, plunged more than a quarter this week, and its corporate bond prices also fell to levels that typically signal financial distress; Nvidia is one of its major shareholders. Nvidia CEO Jensen Huang said in an interview in Berlin on Thursday that market turmoil 'will eventually pass', that AI technology is transformative and has a positive impact on industries and countries, and that investors should 'return to first principles and focus on fundamentals'. ^[3]

Fiscal 2026 Deficit at $1.99 Trillion; Net Interest Costs Top $1 Trillion for First Time

Data released by the US Treasury on Oct. 16 showed that the federal budget deficit for fiscal 2026 through September widened to $1.99 trillion, an increase of about 12% from $1.78 trillion in the previous fiscal year; spending rose about 6% to $7.4 trillion, and revenue rose about 3% to $5.4 trillion. Net interest costs increased by $81.4 billion to $1.05 trillion, exceeding $1 trillion for the first time; total interest costs for the year reached $1.360 trillion, another record high. The deficit was about 6% of GDP, and the stock of public debt topped $40 trillion last month; 23% of marketable US Treasury securities were short-term Treasury bills. Officials from the IMF, European Central Bank and CBO all expressed reservations about relying solely on economic growth to bend the debt curve lower. ^[5]

Service-Sector Price Increases Fastest Since 2022; Business Activity Index Weakens

The New York Fed's business leaders survey released on Oct. 16 showed that service-sector firms' selling prices rose at the fastest pace since 2022 in October, input cost growth remained strong, and supply availability continued to deteriorate; the overall business activity index fell 12 points from the previous month to negative 20.7, the weakest reading since March, capital spending plans were weak, and firms became more pessimistic about the outlook. September import prices rose 1.1% month on month, also above market expectations. Chicago Fed President Goolsbee said there was almost no sign of improvement in service-sector inflation, while Fed Chair Warsh kept policy action at the remaining meetings this year vague; the Fed raised rates last month citing inflation, and markets still had relatively strong expectations for another move this year. ^[6]

SoftBank's Potential Allied Universal Acquisition Sends ADR Down Nearly 10% in a Day

Bloomberg on Oct. 16, citing people familiar with the matter, reported that SoftBank Group is in the early stages of studying an acquisition of Allied Universal, the largest US security services company; a potential deal could give the latter an equity valuation of up to $18 billion; the company also has about $12 billion in publicly traded debt, and the total transaction value could approach $30 billion. Talks are still preliminary and key terms are undecided. After the news, SoftBank's ADR plunged nearly 10% in a day to $14.72 per share. Masayoshi Son sees the security business as a key testing ground for robotics, and SoftBank has recently moved aggressively in AI and robotics, including setting up Roze, committing $65 billion to OpenAI, and acquiring ABB's industrial robotics unit for $5.4 billion. ^[1]

Roundup: Fiscal, Energy and Inflation Constraints Jointly Shape Risk Pricing

Taken together, the market is pricing three mutually reinforcing constraints: first, whether long-end Treasury supply can decline; second, whether oil prices and sanctions on Russia will push inflation higher again; and third, whether the long-term returns on AI capital spending can support current valuations. High fiscal 2026 deficits and interest costs have made fiscal policy space a greater focus; faster service-sector price increases mean the timetable for a monetary policy shift may be pushed back. Next, the Treasury's Nov. 4 quarterly refunding announcement, the deadline before Oct. 18 for a decision on Russia sanctions, and progress on relevant congressional bills will become key nodes for watching long-end rates, oil prices and risk asset sentiment. ^[2][4][5]