| Good morning. Big investors contemplate 5% Treasury yields, Huawei embodies China's chips resilience and Japan's surprise bond purchases. Here's what's moving markets. — Kristine Aquino BlackRock CEO Larry Fink and Pershing Square Capital's Bill Ackman are among investors pondering ever-higher Treasury yields. "We're going to have 10-year rates at least at 5% or higher" due to structural inflation, Fink told Bloomberg's Dani Burger. Meanwhile, Ackman said he wouldn't be shocked to see 30-year Treasury yields well into the 5% barrier, during an interview with CNBC on Thursday, adding that energy prices and interest rates moving up remain a concern. Their comments come as Treasuries are heading for a record third straight annual loss, after sinking 12.5% last year, with long bonds having lost 12% since June. China is signaling that US efforts to maintain its superiority in chipmaking are faltering. That was seen in the August release of Huawei's Mate 60 Pro smartphone, which showcased a chip that may be only four years behind US technology, despite export controls aimed to hold China back by 8 to 10 years. That comes ahead of plans by President Joe Biden's administration to finalize its export controls in the autumn and broaden the range of US technology it tries to keep away from Chinese customers. "If these chips are getting into Huawei's hands for smartphones," says Reva Goujon, director at the Rhodium Group consulting firm, "where else will they go?" The Bank of Japan announced an unscheduled bond purchase on Friday, which halted an advance of benchmark 10-year yields to a fresh decade high. While the Japanese central bank's purchase of the equivalent of $2 billion of five- to 10-year bonds was deemed relatively small by some investors, the move serves as a reminder of its determination to manage the upward momentum in sovereign yields. "The big implication of this unscheduled bond-purchase operation is that the BOJ tells the markets not to challenge the central bank," said Shoki Omori, chief desk strategist at Mizuho Securities Co. S&P 500 futures climbed 0.5% as of 5:57 a.m. in New York, while Nasdaq 100 contracts advanced 0.7%. Treasury yields pulled back across the curve, even as 10-year rates head for a fourth-straight weekly rise. The Bloomberg Dollar Spot Index fell for a second day, boosting all Group-of-10 currencies. Brent crude traded above $95 and gold rose for the first time in a week, while Bitcoin fell. At 8:30 a.m., we'll get data on personal income and spending, as well as the latest reading on the Federal Reserve's preferred inflation gauge and wholesale inventories. At 10 a.m., the University of Michigan will publish its latest consumer sentiment figures. Treasury Secretary Janet Yellen will speak at 11:50 a.m., and Federal Reserve Bank of New York President John Williams will deliver remarks at 12:45 p.m. This is what's caught our eye over the past 24 hours: Barring an act of God or Congress, the US government will likely shut down this weekend. While that's typically a non-event for markets in the grand fullness of time, this particular episode lands at a sensitive juncture for Treasuries. Unlike in recent shutdowns, the Federal Reserve's monetary policy dial is firmed turned to restrictive territory with well-telegraphed plans to stay there. That's a much different setup than the record 35-day government shutdown that kicked off in December 2018, when the Fed had signaled it was about to wrap up its hiking cycle and was tilting dovish. That backdrop means that unlike the handful of government shutdowns we've seen over the past couple decades, Treasuries yields may continue to climb throughout, according to JPMorgan Chase & Co. "The thing that actually concerns us is there's an acute awareness and concern on fiscal right now and Treasury supply, to the extent that that has manifested itself with an increase in term premium over the past couple months," JPMorgan's Jay Barry, co-head of US government-bond strategy, told me on Bloomberg Television's Real Yield. "That's something that may even pressure Treasury yields modestly higher if we have a shutdown." Which isn't exactly a soothing message to hear after September's breathless selloff, which sent yields across the curve careening to decade-plus highs — particularly on the long-end of the curve. Even with a late-day bid in US trading on Thursday, 10-year yields are currently hovering just below 4.6%, after entering the month below 4.2%. While a potential US government shutdown would land at an awkward time for the bond market, it would be even more awkward for the Fed. In the case of a shutdown that lasts longer than a few days, the publication of key economic data would be delayed — meaning policymakers might be flying partially blind at October's meeting. "They might not have all the data they would ideally like to be making decisions and certainly in a period where we've having labor strikes, high gas prices, student loans restarting, the shutdown itself," Courtney Rosenberger Gelman, managing director of policy research at Strategas Securities, said on Bloomberg Television's The Close. "It's not a good time to have a lack of clarity for a data-dependent Fed." Here's a short list of potential delays: the jobs report on Oct. 6; CPI on Oct. 12; retail sales on Oct.17; and PCE on Oct. 27. Not to mention, data collection would be put on hold as well. As pointed out by Bloomberg Economics, the collection period for the household survey that will generate October's unemployment rate is scheduled to commence on Oct. 15. Obviously that creates a unique headache for the Fed, which is in the throes of trying to determine how close the finish line is in the fight against inflation. But there was a somewhat optimistic take to be found in recent comments from Minneapolis Fed President Neel Kashkari — the economic hit from a government shutdown or prolonged auto strikes would potentially do some of the Fed's work. "If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2% because the government shutdown or the auto strike may slow the economy for us," he said in an interview Wednesday on CNN. "I'm not hoping for that, but there's an interaction there." Follow Bloomberg's Katie Greifeld on Twitter at @kgreifeld. | 
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