The week opened with relief. Oil fell, yields eased, and the Nasdaq set a record on Tuesday.

It closed with the bond market in charge.

The 10-year Treasury yield closed Thursday at 5.18% on the Treasury's daily curve, its highest close since July 2007. At 11:30 a.m. Eastern Friday, it traded near 5.20%, about 20 basis points above last Friday's close.

Stocks barely flinched. At the same hour, the S&P 500 was up about 1% for the week and the Nasdaq about 1.9%. The Dow was down 0.2%. The Russell 2000 was down 0.9%. WTI traded near $94, and Brent near $106.

In between, Berkshire Hathaway built a stake of about 10% in Lennar (LEN). Treasury Secretary Scott Bessent said the U.S.-China trade truce now runs to January 10. Costco (COST) beat estimates across the board.

Six threads. One shift. The bond market tightened without the Fed.

The Diagnosis Changed on Wednesday

The easy story said inflation was an oil shock. End the war and it fades.

Wednesday broke it. S&P Global (SPGI) said its flash composite PMI jumped to 58.4, the fastest growth in more than five years. Input costs rose at the steepest rate in four years.

Fed Governor Michael Barr said more increases are likely needed. New York Fed chief John Williams called one more hike this year "reasonable."

Futures priced about a 73% chance of an October hike by Thursday, up from 55% a week earlier.

On Friday, headline durable goods orders were flat in August, but core capital goods orders rose 1.6%, well above forecasts. Consumers' year-ahead inflation expectations rose to 4.6% from 4.0%.

The Takeaway A ceasefire can end the oil shock. It cannot undo a 58.4 PMI. The Fed now has two reasons to hike, and only one lives in the Middle East.

The Long End Stopped Giving the Fed Credit

Last Saturday, we wrote about a hike that pulled long yields down. This week ran the other way.

A $70 billion five-year auction cleared at 5.033%, the highest at that sale since 2006.

Then crowded bets broke, and the exits added to the selling. "There appears to be a lot of pain on the street in fixed income," wrote Mohit Kumar of Jefferies (JEF). The 30-year touched about 5.45% Thursday, a level last seen in June 2004.

The leveraged basis trade has lost about a fifth of its size this year, per Morgan Stanley (MS).

The Takeaway Forced selling fades once crowded bets clear. A move built on the economy does not. This week had both, and Friday's data leaned toward the second. In mid-September, 5% worked like a ceiling on the 10-year. It is starting to work like a floor.

Oil Relief Ran Ahead of the Barrels

Early on, oil eased. WTI fell to near $89 Tuesday.

Iran floated reopening Hormuz, and its own state media denied it. Saudi Arabia restarted its East-West pipeline, its detour around the strait. But the restart is phased. Full capacity is about six weeks away.

Then supply broke elsewhere. An armed group shut Libya's largest oil field Wednesday. On Thursday, the Saudi-led coalition said it stopped missiles aimed at Yanbu, the pipeline's export end. The claim could not be verified. Brent settled above $106.

Word of a phased U.S.-Iran plan cut Brent $2.80 in five minutes. No deal exists. Preliminary tracking showed nine commodity-vessel transits through Hormuz that day.

The Takeaway Talk moves the price. Traffic moves inflation. The detour now carries the load, and Thursday showed it is a target. Fuel already sits in the PMI's cost line. Until ships move, oil keeps feeding the Fed's case.

The AI Buildout Met Its Lenders

Oracle (ORCL) sent a force majeure notice on Project Jupiter, its New Mexico campus. It lets Oracle defer payments if the site misses its 2028 start.

The $18 billion construction loan already traded below 90 cents. Oracle fell about 4% Thursday, and a gauge of its credit risk hit a record. Blue Owl (OWL), whose unit is the developer, fell too.

The reported trouble is not weak demand for compute. A gas pipeline to the site slipped to February 2027, and an energy permit was denied. Oracle says the project is on schedule.

AI issuers pay spreads near 115 basis points, against 78 for high grade overall, per Goldman Sachs (GS) and ICE data. Chipmakers' default-swap prices rose with their stocks. HSBC argues hyperscaler spreads may be peaking.

The Takeaway Stocks price AI demand. Credit prices AI timing. With long yields near 5.5%, a late building costs more to carry. The permit and the loan's price will show if this notice stays a precaution.

The Bond Market Did the Fed's Work on Main Street

The Fed's rate sits at 3.75% to 4%. The average 30-year mortgage rose to 7.03% this week, its first time above 7% since early last year.

Nearly one in ten applicants chose an adjustable rate, and refinancing sat 62% below a year ago.

McDonald's (MCD) called flat traffic the new normal. "We need to stop talking about that being a difficult environment, and just say that is the environment," said CEO Chris Kempczinski. The stock hit its lowest since October 2022.

Households are souring while firms boom. Michigan's final September sentiment index fell to 48.1, from 51.7. The PMI says business is running hot. The survey says the people paying 7% are not.

The Takeaway The Fed can undo a decision at one meeting. Long yields answer to oil, deficits and global selling. If the 10-year holds above 5%, a 7% mortgage is no longer a spike. It is the price.

The Index Held. Most of Its Members Did Not.

Meta (META) added about $192 billion in one session as Muse climbed Apple's App Store. Muse also hit LPL Financial (LPLA) and Charles Schwab (SCHW), down 7.5% and 6.1% Tuesday on AI disruption fears.

The average stock missed the rally. Through Thursday, Invesco's QQQ (QQQ) was headed for a weekly gain of about 2.5%. The equal-weight S&P 500 was down 0.6% for the week. At Tuesday's close, 52% of S&P 500 members traded below their 200-day averages, per MarketWatch.

The Takeaway An index can hold while a rate shock works through its members. Breadth is where a 5% 10-year shows up first. The test is whether a few leaders keep carrying the rest, or join them.

Inflation is no longer just an oil story. A hot PMI, a Fed chorus and firm Friday data put demand back in the case.

The Fed's rate did not change. The 10-year still rose about 20 basis points, and mortgages crossed 7%.

What the week did not settle is the route. Oil fell on talk and rose on missiles. The pipeline is back in part. The strait is not.

Nor did the buildout. The trouble behind Oracle's notice was a permit and a pipeline, not demand. The loan's price will show what lenders believe.

The open question is whether 5% is now a floor. The data before the October 28 meeting will answer it.