Ten Reasons to Like 10-Year Treasuries; AGNC & Annaly Earnings
October 21, 2026 | This edition of The Institutional Risk Analyst is the 900th comment since we resumed publication in March of 2017. The Institutional Risk Analyst was founded in 2003 by Dennis Santiago and Christopher Whalen as the voice of Institutional Risk Analytics. The publication was served off a custom SQL engine on a terrestrial server cluster located in the back of an old semiconductor fab in Hawthorne, CA.
In this issue, we start with a contribution from our friend Ralph Delguidice on a question that is top of mind with many people, namely is this time to be a buyers of Treasury bonds. Now that LT interest rates have seemingly peaked and equities are losing steam after a couple of years of supercharged performance, are bonds a buy? Then we take a look at the earnings from AGNC Investment Corp. (AGNC) and Annaly Capital Management (NLY).
Ten Reasons to Like 10-Year Bonds
The Wall Street narrative still says that the Fed is fighting inflation, but we continue to believe that a slowing economy will force the FOMC to ease ST interest rates next year. But how low can interest rates really go if the Fed is not buying notes and bonds for the system open market account (SOMA)? Ralph Delguidice offers these 10 reasons why the 10-year Treasury note is attractive.
1. Where else do you go? France? Japan?
2. Blue Wave coming. Bonds LOVE gridlock
3. There is no inflation
4. Energy is higher, along with food, but core is not. 2.6% today. No pass through
5. Wages are FALLING. No pass through
6. Shelter is 30% of the indexes, it is falling (in realtime). Ignore model lags
7. Warsh did his perfunctory freshman tightening, he is done
8. Hyperscalers are crowding high grades out AND suggesting deficit friendly growth, they are done
9. CCC spreads are exploding wider
10.Bessent is going to take a page from Yellen and shift issuance to the front end. EVERYBODY is short.
We particularly appreciate Ralph's comment about the market being short, whether they know it or not. The obvious question is how low can Treasury 10s go in a rally? Ralph: “Back to reals of 1%. So 4% on 10’s seems about right.”
To us, the range for a bond rally really depends on the reason for the rebound. If we see a steady but predictable correction in stocks and no systemic event appears on the horizon, then the answer is perhaps half the distance to the lows seen in early 2026. We priced a 30-year fixed rate mortgage with Freedom Mortgage at 5.875% in early March and 10s only lingered at those levels very briefly.
If the reason for the bond rally becomes more pressing, however, then yields on 10-year Treasury securities could easily retrace back down to 4%, but also probably not linger at those levels for very long. The damage done to the Treasury market by the team of Trump & Bessent is considerable and inflation for energy, food and many other necessities is going to be an issue for consumers residing in the bottom of the “K” in 2027 and beyond.
“As stated earlier, I do not believe that last week’s escalation in said “Momentum” / “Trend” -reversals was a capitulative narrative pivot into some sort of “Growth Scare / Recession” -outlook as “Chalk” / the base-case just yet,” notes Charlie McElligott at Nomura. “However, we could absolutely still get to that “Growth Scare” place in short-order, IF said higher Rates, wider Credit Spreads and sticky Energy prices / ongoing shortages in Refined product could suddenly lead to sharply more restrictive FCI, in-turn creating the dreaded “Demand Destruction” -scenario in the US Economy…”
We think that demand destruction will ultimately make the FOMC pivot and ease in 2027 – even with a $2 trillion fiscal deficit. The Fed will ultimately restart QE to monetize the federal debt.
AGNC & Annaly
To get a sense for the kind of price volatility you can expect to see from Treasury 10s, take a look at the response to the earnings release this week from AGNC. The REIT reported a sizable decline in book value, which resulted from rising interest rates and an inadequate hedge.
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