The Overnight Report: The Inverse Bond Trade

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US markets pushed higher as investors continued to gravitate towards technology stocks.

The Nasdaq Composite closed at a new record high, its 23rd record high of 2026, despite rising bond yields.

The Australian market closed flat on a quiet day of trading on Monday. ASX200 futures are pointing to a higher start.

World Overnight
SPI Overnight	8750.00	+ 27.00	0.31%
S&P ASX 200	8686.40	+ 4.30	0.05%
S&P500	7773.95	+ 51.23	0.66%
Nasdaq Comp	27477.31	+ 286.45	1.05%
DJIA	51267.90	+ 90.94	0.18%
S&P500 VIX	15.52	+ 0.21	1.37%
US 10-year yield	5.31	+ 0.03	0.64%
USD Index	102.14	+ 0.22	0.21%
FTSE100	10497.94	+ 35.99	0.34%
DAX30	25254.21	+ 23.01	0.09%

Good Morning,

The Australian market finished off its intraday high of up 0.6%, ending flat, up 4.3 points or 0.05% to 8686.40, with volumes light as several Australian states enjoyed a public holiday.

Citi on Aspen Group ((APZ)):

“Aspen Group’s 1Q FY27 update demonstrates strong execution across both its rental and development businesses, with Q1 EBITDA of $17.8m (+38% pcp) and Realised Development Profit of $7.9m (+98% pcp) materially tracking ahead of expectations.

“Management reiterated FY27 guidance, implying a deliberately conservative full-year stance despite a strong start — Citi views this positively as reflective of management discipline.

“The residential rental platform continues to operate at essentially full occupancy, NRI margins expanded 300bps to 58%, and the development pipeline is 78% contracted toward FY27 guidance already.

“Aspen’s Adelaide tour is expected to reinforce the quality of its metro-located assets and the depth of its value-add pipeline. Citi’s take is that the risk/reward at current levels remains compelling, with the stock trading on 19.0x FY27 PE and at a premium to reported NTA that we believe is justified by its strong development pipeline.”

For more details and to stay in touch with which companies are reporting are going ex-dividend, check out the FNArena Calendar https://fnarena.com/index.php/financial-news/calendar/

Today’s Big Picture, J.L. Bernstein extract

Tech Hits a Record While Bonds Sell Off

The Nasdaq set a record the same day the 10-year Treasury yield hit its highest level since 2002.

Rising rates usually hurt growth stocks. Infrastructure Capital’s Jay Hatfield says tech now works like “the inverse bond trade”.

He argues AI demand is so strong that big tech barely cares what it costs to borrow.

Brazil Rallies on Bolsonaro’s First-Round Lead

Brazilian stocks had their best day since March 2020 after Flavio Bolsonaro edged out President Lula on Sunday.

The dollar fell to 4.99 reais, its lowest since at least May.

Investors like Bolsonaro’s promise to cap Brazil’s public debt, and JPMorgan upgraded Brazilian stocks to overweight. The runoff is Oct. 25.

Schneider Agrees to Buy PTC for US$22.6 Billion

France’s Schneider Electric will pay US$205 a share in cash for PTC $PTC. PTC had its best day on record, while Schneider sold off in Paris.

Citi said the deal could be seen as “opportunistic,” since AI disruption fears had already knocked industrial software stocks down. It also gave other AI stocks a lift.

ANZ Bank, Australian Morning Focus extract

Big tech pushed global equities higher, with the S&P500 up 0.8% and the Nasdaq up 1.2%.

In Europe, the EuroStoxx50 closed 0.1% higher and the FTSE100 rose 0.3%.

The yield on the US 10y Treasury note rose 4bp to 5.31%.

Oil prices dipped, with WTI down -1.2% to US$89.3/bbl. Gold rose 0.3% to US$4,142/oz.

The US September ISM non-manufacturing index eased -0.5pts to 54.9. The decline was led by a -5.2pt fall in the business activity (production) subindex to 56.5, alongside a -1.1pt drop in new orders to 59.8.

Nevertheless, the index remained in expansionary territory for a 27th consecutive month, pointing to continued economic resilience despite the conflict in the Middle East.

Firms continue to grapple with rising input costs, with the prices paid subindex increasing 1.4pts to 74.0. Employment rose 2.3pts to 50.1, suggesting the labour market is broadly in balance.

Steeper curves: Over the past week, near-term central bank tightening expectations have retreated, yet bond yields have continued to climb.

This suggests the sell-off in bond markets is not about central bank credibility, but rather reflects structural drivers, ranging from quantitative tightening (QT) and heightened competition for capital to a lack of political appetite for reducing government borrowing.

The French bond market has been in the eye of the storm recently, ahead of the presidential election in April and May next year. None of the opposition parties on which the minority government depends to pass the 2027 budget are incentivised to support Prime Minister Lecornu’s proposed EUR54bn of budget cuts.

Political gridlock may ensue, and it is estimated that a rollover of the 2026 budget would see the deficit widen by 0.5% of GDP to around 6.0%, or possibly higher.

Halting QT and activating the Transmission Protection Instrument are potential tools the ECB could deploy if widening OAT spreads become contagious.

However, the hurdle for intervention is high.

Difficult budget negotiations may also come to the forefront in the US following its November midterm elections, particularly if they result in a divided Congress.

For now, the trend in bond yields remains upward against a backdrop of central banks’ tightening bias, resilient growth and persistent political uncertainty.

The Pulse of the Market – Silver Lining for Small Caps, Lori Calvasina, RBC Capital extract

Small Caps were under pressure ahead of Friday’s jobs report, with the Russell2000 having underperformed the S&P500 pretty steadily since mid year. We have argued a lot of this was due to concerns about higher interest rates and Fed hikes.

In recent years, Small Caps have tended to underperform Large Caps when financial market participants were adding hikes or taking out cuts from their forecast.

Even though Small Caps have historically tended to underperform when jobs growth is cooling and outperform when that (and other cyclical indicators like ISM manufacturing or year-ahead GDP forecasts) are ramping up, the Fed outlook has seemed to matter more for Small Cap relative performance in recent years in day to day trading.

Not surprisingly, Friday’s weaker than expected jobs report was followed by a surge in Russell2000 futures that outstripped the move in S&P500 futures, and the Russell2000 continued to outperform the S&P500 in early Friday trading after the open as expectations for hikes eased.

It remains to be seen whether Friday’s good mood in markets re the Fed will persist, and what will happen with 10-year yields where cross currents are complex.

Thinking about the trajectory for Small Caps going forward, there have been a few things in our work that have suggested Small Caps were starting to get interesting if interest rate concerns could be resolved.

First, positioning in CFTC’s data for Russell2000 futures (which we see as more of a sentiment gauge) has been deep in net short territory. At recent lows, these net shorts hit the third lowest level we’ve seen over the past decade.

There has been a bit of a narrowing of this short in recent updates arguing sentiment here may be poised to improve.

Second, valuations in Small Cap have started to look attractive again. The market cap weighted NTM P/E for the Russell2000 recently fell below its post GFC average and also a little bit below the Iran war low achieved earlier this year.

To be clear, valuations are not deeply compelling, but they have hit an interesting threshold. Beyond the Fed, positioning/sentiment, and valuation, it’s also worth noting that Small Cap equity flows have improved slightly while Large Cap equity flows have stumbled.

We are also continuing to see better net income growth forecasts for Russell2000 companies in 2027 than the S&P500 (looking specifically at consensus estimates). But the advantage that the Russell2000 appears to have on this front relative to AI names in the S&P500 also appears to be narrowing significantly late next year.

Fundamentally, it’s also worth noting that despite Friday’s jobs miss, RBC Economics still sees the labor market as healthy. Typically, Small Caps outperform when jobs growth is accelerating and lag when it is cooling.

Our bottom line: Though we’re sticking with our neutral stance on Small Cap vs. Large Cap for now, Friday’s jobs report and the downshift in hike expectations has left us feeling incrementally better about Small Caps.

Quick Hits: What Else Jumps Out

• Erosion in our earnings yield gap model. While it’s still not at a level that has typically been followed by 12-month forward declines in the S&P500, it is worth noting that our earnings yield gap model (which compares the bottom-up earnings yield of the index using consensus NTM EPS to the 10-year Treasury yield) has fallen into a less favourable range for the stock market as bond yields have made their latest move higher. This model is now signaling a 9.3% 12-month forward return for the S&P500, down from more than 14% previously.
• Betting markets and the midterms. After hitting a new high on 9/23/26, expectations for a Democratic sweep in Polymarket have edged lower over the past week. We think this matters for the stock market because S&P500 has flattened out in recent months as expectations for a Democratic sweep moved up sharply. Our July analyst survey work also suggested a Democratic sweep would be a mild negative for the stock market from a policy perspective. Interestingly, Financials sector performance relative to the S&P500 has been moving in sync with trends in expectations for a purple outcome (Republican Senate, Democratic House) which have been falling. It’s possible that rising oil prices and interest rates have simply been taking a toll on both indicators.

Corporate news in Australia:

• News Corp ((NWS)) is conducting preliminary due diligence on The Land as a potential acquisition from Australian Community Media owners Antony Catalano and Alex Waislitz
• US-based Schreiber Foods is in talks to acquire Paul Lederer’s Real Dairy Australia
• Singapore sovereign wealth fund GIC has hired JPMorgan to bid for Rio Tinto’s ((RIO)) roughly US$7bn portfolio of Pilbara and Canadian infrastructure assets
• Hertz Global is preparing to sell its Australian operations and has asked local investment banks to pitch for the sale mandate
• Ingenia Communities ((INA)) has granted Warburg Pincus non-exclusive due diligence on its $5.25 per share takeover proposal while continuing engagement with Peet ((PPC))
• Pressure is mounting on Pacific Current Group ((PAC)) over its handling of a competing $12.56 per share takeover proposal from Roc Partners and potential board conflict
• Firmus may miss December ASX index inclusion despite its planned $7bn IPO, potentially delaying around $2.4bn of index-linked buying until March
• APRA is examining superannuation funds’ exposure to Metrics Credit Partners ((PNI)) amid mounting stress in private credit
• KPMG’s final audits have reduced the fair value of investments held by Metrics’ ((PNI)) listed funds by $185.5m, highlighting concerns around private credit valuations and credit losses
• Macquarie Capital ((MQG)) has acquired a stake in Zerra DC, gaining exposure to its more than 2GW APAC data centre development pipeline
• Swipejobs is testing investor appetite for a potential $2bn ASX IPO
• Dexus ((DXS)) has hired Citi to raise new equity for its $5.8bn Australian Data Centres platform, potentially diluting Dexus’s 85% stake
• Potentia Capital’s $670m Fund II has generated an annual IRR of just 2.6% after four years, with AI disruption weighing on its software investments

On the calendar today:

-AU Sep ANZ job ads

-CH Public Holiday

-EZ Aug Retail sales

-US Aug Trade Bal

-GE Aug Factory orders

-ASPEN GROUP LIMITED ((APZ)) investor briefing

-HARVEY NORMAN HOLDINGS LIMITED ((HVN)) ex-div 13.00c (100%)

-KATANA CAPITAL LIMITED ((KAT)) ex-div 0.5c (100%)

-REECE LIMITED ((REH)) ex-div 13.40c (100%)

-RIDLEY CORPORATION LIMITED ((RIC)) ex-div 5.35c (100%)

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Spot Metals,Minerals & Energy Futures
Gold (oz)	4138.93	– 1.26	– 0.03%
Silver (oz)	61.07	+ 0.70	1.16%
Copper (lb)	6.59	+ 0.10	1.54%
Aluminium (lb)	1.41	0.00	0.00%
Nickel (lb)	7.00	0.00	0.00%
Zinc (lb)	1.72	0.00	0.00%
West Texas Crude	89.33	– 1.78	– 1.95%
Brent Crude	100.38	– 1.87	– 1.83%
Iron Ore (t)	91.45	+ 0.10	0.11%

The Australian share market over the past thirty days…

Index	05 Oct 2026	Week To Date	Month To Date (Oct)	Quarter To Date (Oct-Dec)	Year To Date (2026)
S&P ASX 200 (ex-div)	8686.40	0.05%	-1.17%	-1.17%	-0.32%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A1M	AIC Mines	Upgrade to Buy from Accumulate	Ord Minnett
AMI	Aurelia Metals	Downgrade to Neutral from Outperform	Macquarie
DPM	DPM Metals	Downgrade to Neutral from Outperform	Macquarie
DRO	DroneShield	Upgrade to Hold from Lighten	Ord Minnett
DRR	Deterra Royalties	Upgrade to Buy from Neutral	UBS
GGP	Greatland Resources	Upgrade to Outperform from Neutral	Macquarie
GL1	Global Lithium Resources	Downgrade to Neutral from Outperform	Macquarie
LIN	Lindian Resources	Downgrade to Underperform from Neutral	Macquarie
LTR	Liontown	Downgrade to Hold from Buy	Ord Minnett
LYC	Lynas Rare Earths	Upgrade to Accumulate from Lighten	Ord Minnett
MEI	Meteoric Resources	Downgrade to Hold from Speculative Buy	Ord Minnett
QBE	QBE Insurance	Upgrade to Outperform from Neutral	Macquarie
RIO	Rio Tinto	Upgrade to Outperform from Neutral	Macquarie
TCL	Transurban Group	Upgrade to Outperform from Neutral	Macquarie
		Upgrade to Accumulate from Hold	Ord Minnett
WAF	West African Resources	Upgrade to Outperform from Neutral	Macquarie

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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