U.S. Treasury yields are rising as investors weigh another Federal Reserve rate increase. For the fourth quarter, Christine Tan says company earnings and forecasts will be central to how stocks perform.
BNN Bloomberg spoke with Christine Tan, portfolio manager at SLGI Management, about the forces driving bond yields and what she is watching as the year draws to a close.
Key Takeaways
- Tan says resilient economic data, persistent inflation and a heavy supply of new bonds are contributing to higher long-term yields.
- Higher long-term yields could put pressure on U.S. mortgage lending and other parts of the economy sensitive to interest rates.
- Any slowdown in spending by major AI companies could become a headwind for sectors that benefit from their investment.
- Tan is watching for firm investment commitments following the Canada Investment Summit.
- U.S. bank earnings could offer clues about trading revenue, deal activity and pressure on lower-income consumers.
Read the full transcript below:
ROGER: U.S. Treasury yields are trading near multidecade highs as investors bet on another rate hike from the Federal Reserve. Let’s get some perspective. Joining me now is Christine Tan, portfolio manager, SLGI Management. Christine, thanks as always for joining us.
CHRISTINE: Good morning. Thank you for having me, Roger.
ROGER: Okay, lots going on. Talk about—let’s talk about the idea. The Fed may be hiking. What are we looking at from your perspective? What do you think we’re going to see?
CHRISTINE: Yeah, it’s—what a, what a sea change from the expectations at the start of the year when I think we all came in expecting the Fed to cut. What we’ve seen is, obviously, inflation has sort of started picking up again, and it’s becoming quite sticky. More recently, we had some very strong PMI data coming out in the U.S. So, again, indicating that the economic side of the economy is actually quite strong as well. And the Fed did hike in the last meeting, and the market seems to be expecting another hike before the end of the year. We also have a pretty active auction schedule. So headlines this morning were around the 30-year bond yields, but we did have a five-year auction yesterday that was a bit soft in terms of bid-to-cover. There’s a seven-year auction today as well. So, generally, you’re seeing the yield curve kind of move up, pretty much along the curve in the U.S. Treasury market.
ROGER: And how soft was the auction?
CHRISTINE: It was about just over two times cover, and it was issued about three basis points off of what’s called on-the-run pricing, so—which is a little bit unusual. So, not very soft, but it certainly indicates that, you know, there’s a lot of supply, not just coming out of the U.S. Treasury, but we’ve certainly seen a fair amount of issuance coming out of the big U.S. tech companies as well. So, just a lot of supply. Yields are attractive, yes, but the market’s trying to find that level at which they feel they’re being compensated for taking on some of these new issuances.
ROGER: All right, and you mentioned about the 30-year—highest level in more than two decades.
CHRISTINE: Yeah, that’s a challenge because in the U.S., that, that particular part of the curve influences the mortgage rate. So, you know, we are going to see an impact on that part of the market and some of the more cyclical parts of the market. But again, part of it is pricing in stronger PMI data. So, again, the economy seems to be still quite resilient. Part of it is pricing in inflation that is stickier, and there is more of a thought that perhaps it transmits beyond just the energy component of the CPI basket, and then part of it is supply. So it’s sort of the three different facets that are coming in and influencing where longer bond yields are coming in at.
ROGER: And so what does all this say about the economy? Is there concerns for the economy, or is it still pretty resilient?
CHRISTINE: It’s a great question. It’s—we don’t really know for certain at this point because, certainly, again, part of the reason bond yields are moving up is the resilience in the data, but higher interest rates will sort of soften economic activity. Now, you could also say that, specific to the U.S., the interest rate-sensitive parts of the economy is still—has been quite moderate, and a fair amount of the economic activity has been driven by AI capex, AI spending, and how it’s sort of transmitting through a broader range of sectors like utilities or some of the infrastructure companies. So maybe higher rates will start to slow that activity down. We also have this overarching sort of message that’s coming out from the big AI players in the U.S., the leaders, saying that perhaps they want to pace themselves a bit more. They want to be more cautious on the frontier side in terms of how quickly they’re developing AI, so remains to be seen. But certainly, that part of capex, that spending that these hyperscalers and AI-related businesses are doing, has been a pretty significant driver in the economy.
ROGER: All right, and for the markets, with all this, September seems to be being September again: up and down, volatile. What are you looking at for the final quarter?
CHRISTINE: Earnings. Very much still focus on earnings. What we’ve seen year to date is that when you look at the total returns for the S&P and the TSX and even EFI, what’s encouraging to us is the returns have been driven by earnings, and we’ve actually seen a derating of valuations. So what we mean by that is that valuations of the S&P and the TSX—less so on the EV markets—but has actually come in a little bit. So what the market’s doing is it’s being very discerning. So you’re actually seeing instances where a company might beat earnings, but their outlook is a little bit more cautious, and the stock reacts negatively to that. So it is very much focused on fundamentals. We are looking for, again, any kind of signals around the AI capex and where it’s headed for 2027. Because this year, I think one estimate we’ve read is that global AI-related capex is close to a trillion dollars, and just under 600 billion of that is in the U.S. So any kind of change or moderation in that would be—could be a headwind. So those are some of the things that we’re watching. And more on the domestic front, we’re watching the Bank of Canada. The economic picture in Canada is a bit more muted. We are more impacted with the—with, in terms of the trade discussions with the U.S. Inflation is an issue as well, but again, the Bank of Canada has said so far they’re watching to see whether or not it broadens out. And news coming out of the Canada Investment Summit—it was a great event. $120 trillion in global capital, although 40 per cent of that was from the U.S., came to Canada to look at a bunch of projects, infrastructure projects that we’re looking to build over the next five to 10 years. So we’re watching for sort of follow-through, any kind of commitments from some of those—the individuals or the investors, the sovereign wealth funds, pension funds, institutional investors that were in the room.
ROGER: All right, and just going back to the earnings for a sec, the banks, U.S. banks, what we were looking for there.
CHRISTINE: Yeah, the U.S. banks usually lead the way. The things that we’re watching for is basically what’s happening on the trading floor, because that’s certainly been a very strong driver of earnings. Market volatility is a good thing for that part of the business. Investment banking revenues, again, any kind of new issuance activity, M&A—that’s all positive. We’re always looking for any kind of nuances on the credit front. What are we hearing about the consumers? So there’s this K-shaped dynamic that continues to be very prevalent, and we’re hearing about it from the banks. We’re hearing about it from the consumer stocks. Basically, the K-shaped is just the upper-income, wealthier consumers are doing okay, and they continue to drive a lot of the spending. The middle-income to lower-income consumers continues to be very stretched, so they’re hit the most with—impacted by the inflation, inflationary inflation in the—in the basket of goods that they consume. So that’s what we’re watching for, and any kind of indication that there’s concerns around the credit cycle again, because that’s been moderating. But again, I think it should be a pretty, a pretty resilient quarter, just given the broader economic landscape.
ROGER: Okay, we have to wrap it up there, Christine. But always appreciate your insight. Thank you.
CHRISTINE: Thank you.
ROGER: Christine Tan, portfolio manager at SLGI Management.
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This BNN Bloomberg summary and transcript of the Sept. 24, 2026 interview with Christine Tan are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
