The riskless bond pays more than the stock market

The week, in our words

The riskless bond pays more than the stock market. The 10-year Treasury yields 5.29%, up 50 basis points in a month and up 117 basis points over the year. At the 19.0 times forward earnings FactSet recorded on Oct 2, the S&P 500 earns 5.26% on its price. A riskless bond now pays 3 basis points more.

Five of the ten DeepStack notes are tested against live data. This week, all five are under pressure. The investigation of the week, Part 10, “The Bubble Is in the Denominator,” follows the same thread.

The next test is on the calendar. Mid-October: Treasury publishes August foreign holdings; renewed Japanese buying despite poor hedged returns would undercut the missing-buyer thesis behind the long-end selloff.

This week in The Buildout · Part 10

The Bubble Is in the Denominator

AI spending made the market look cheaper. The harder test is whether those profits survive depreciation, weak productivity and a bond market financing the buildout.

The DeepStack CallSkeptical

The market is not cheap. It is capitalizing AI earnings before anyone knows who owns them.

Cheap is conditional · Conviction High (4/5)

Hold the 5.26% earnings yield (19.0 times earnings) against the 10-year: when the bond pays more, stocks offer no risk premium.
Stress-test the 29.5% earnings growth for server lives and depreciation before you pay for it.
Treat the $250 billion of hyperscaler bonds as competition for the savings that set the discount rate.

Read the investigation · 9 min

The numbers that moved

10-year Treasury: 5.29%; 0 bp this week
2-year Treasury: 4.77%; −13 bp this week
30-year Treasury: 5.67%; +4 bp this week
10-year real yield: 2.95%; +2 bp this week
S&P 500: 7,803; +2.0% this week
Brent crude: $100.90; +2.9% this week

Notes under pressure · 5 of 5

Note 04 · Above the 5% line
The riskless bond pays more than the stock market.
What would change our read. Our read eases if the 10-year closes below 5.00%, or if forward earnings rise about 10% at today’s prices. That would cut the multiple to 17.3x and restore a 50-basis-point cushion.
Note 01 · Curve steepening
The long end is doing the tightening.
What would change our read. If the long end falls while the Fed holds, the market is pricing weaker growth rather than heavier supply. Cheaper long money would ease the financing math in Parts 03 and 08, and we would say so.
Note 03 · Input costs rising
The cheap electron is American.
What would change our read. If US gas climbs toward European levels, or copper breaks lower on slowing grid orders, the scarcity premium in Part 06 is moving, and our read moves with it.
Note 02 · Profits ahead of productivity
Profits are running ahead of productivity.
What would change our read. Productivity growth above 2% a year for two straight quarters would start to close the gap. A fall in profits with productivity flat would tell us the denominator was borrowed.
Note 05 · Real money is expensive
Debt is a contract written in real terms.
What would change our read. A 10-year real yield back below 2% would cut the real cost of the buildout’s debt. Breakevens rising toward 3% would mean the bond market has started to believe the households.

Chart of the week · Live

Profits ran ahead of the economy

US corporate profits against output per hour, both indexed to 100. Move the starting line and watch the gap Part 10 calls the denominator.

Run the numbers yourself

Also in The Buildout

Part 09Agentic commerce
Habit Was the Moat. Agents Are Draining It.
Meta’s Muse is testing whether AI shopping agents can reroute spending, squeeze weak subscriptions and expose which moats still hold.
Part 08Infrastructure Finance
AI Lenders Are Financing the End of Scarcity
AI capacity is scarce, but lenders are financing the supply that could erase that scarcity before hyperscaler cash flow catches up.
Part 07Rates
The Fed Hiked. The Long End Still Climbed.
The Fed raised short rates, but long yields climbed. AI financing now sits inside a bond market priced by growth, deficits and a thinner buyer base.

The Docket: dates that will settle the argument

Mid-October
Treasury publishes August foreign holdings; renewed Japanese buying despite poor hedged returns would undercut the missing-buyer thesis behind the long-end selloff.
Part 07: The Fed Hiked. The Long End Still Climbed.
October
Anthropic filing or listing reveals audited revenue, losses and concentration, testing the $400B revenue milestone.
Part 10: The Bubble Is in the Denominator
Oct 28, 2026
The Fed meets; another hike would support Klein’s inflation reading, while no move would strengthen Paulson’s case that September was a mistake.
Part 07: The Fed Hiked. The Long End Still Climbed.
Nov 16, 2026
Nike holds its investor day; margin targets and demand plans show how much selling still assumes human choice.
Part 09: Habit Was the Moat. Agents Are Draining It.