It got kind of wild in the U.S. Treasury market last week: The yield on the benchmark 10-year note swung in surprising ways as investors digested hot inflation reports and AI jitters.

Why it matters: Get used to it. Volatility could be a new normal.

Where it stands: The investors buying U.S. government bonds are different now. The share of buyers that are hedge funds, using borrowed money, has grown while foreign central banks have pulled back.

The latest: The share of U.S. Treasury securities held by official foreign entities like central banks, finance ministries and sovereign wealth funds fell to 11.8% in August, data out Friday from the Treasury Department shows.

• That's down from 40% during the financial crisis era.
• Hedge funds and other investors appear to have filled that void. The share of Treasury securities held by hedge funds hit 33.5%, up from around 10% over that period, per an analysis of the data by Adam Josephson, founder of Sakonnet Research.

Of note: He uses a commonly understood proxy to come up with that hedge fund data: financial centers' share of foreign-held Treasurys in six countries, including the Cayman Islands and Belgium. These are countries where hedge funds typically domicile their money, and it also includes other kinds of private financial actors.

The intrigue: Whereas foreign governments are less price sensitive and more likely to buy Treasurys and chill, hedge funds trade more actively, and they're using leverage to do it — that's a recipe for volatility.

• At the same time, the U.S. government is issuing more and more debt.
• "There's ever more supply, and someone has to step in to absorb it and that someone is increasingly price sensitive, highly leveraged buyers," Josephson says. "It's only natural to see higher volatility."

Catch up quick: The week started off with the yield on the 10-year Treasury note at 5.23% — a level last seen during the run-up to the financial crisis.

• A hot CPI report Wednesday briefly sent the 10-year yield up over 5.3% before it fell back to around 5.08% by Friday. (Remember that when it comes to Treasury securities, small movements carry big meanings.)
• It was the biggest weekly decline since April 2025, (aka around Liberation Day), notes Jim Reid of Deutsche Bank this morning.

What's weird is that the yields fell even though the market saw two different inflation reports that showed prices heating up. Typically, that would mean yields would rise as investors adjusted to higher inflation expectations.

• Wall Street analysts said that this was a flight to safety as the AI trade wobbled — chip stocks were down for the week — and investors decided to buy less-risky Treasury notes and bonds.
• That increased demand drove up prices, which move inversely to yields.

Yes, but: This is a massive market, and no one actually knows for sure what happened.

Between the lines: More volatility in the U.S. bond market could mean higher yields over the long term, Josephson says.

• That would mean higher borrowing costs for Americans taking out loans for houses and cars.
• And for the U.S. government itself. And that could get hairy.

Health care stocks have done well in recent months as investors turn toward "defensive" shares and appear to have priced in increasing odds of Democrats gaining power in the midterm elections.

Why it matters: The price moves suggest that traders and investors see increasing odds that some cuts to Federal health spending imposed by President Trump's big 2025 spending bill could be undone, analysts say.

The latest: The S&P 500's health care sector is up more than 9% over the last three months, the second-best performer of the blue chip index's 11 sectors. (Energy was the best.)

• Pharmaceutical shares like Eli Lilly, Merck and AbbVie were some of the strong contributors over that period.
• Hospital chains such as HCA and Universal Health Services (+21%) as well as insurers like Elevance Health (formerly Anthem, +15%) have also posted gains.

Zoom in: Wall Street analysts suggest that some of the peppiness in health care reflects expectations that costly cuts imposed under unified Republican control in Washington last year could be reversed, delayed or moderated if Democrats win one or both houses of Congress on Nov. 3.

What they're saying: Democratic control of the House and the Senate would open "the door for delays in scheduled cuts to reimbursement for hospital services from the Medicaid program" that were part of the One Big, Beautiful Bill Act enacted last year, wrote Brian Tanquilut, an analyst with Jefferies.

• "A Dem sweep could see increased health care subsidies and delayed health care cuts," Citi analysts wrote earlier this month.

The intrigue: The strong showing for drug stocks such as Merck & Co. (up 14.4% over the last three months) and AbbVie (up about 12%) is hard to square with the expectations of Democrats taking control of Congress, as they are often seen as more open to policies that curtail the industry's pricing power.

• One answer could be that the drug pricing debate has been a relatively low-profile part of campaigning this year.

Reality check: Analysts say that the health care sector stands to benefit the most if Democrats retake both houses of Congress.

• If they just capture the House, "we do not expect meaningful health care reform to pass in this scenario," analysts at TD Securities wrote.
• Moreover, these analysts said, even if the House and the Senate go blue, it could still be difficult for Democrats to deliver policies they're pushing.
• "The better Democrats do in the midterms, the more progressives will be sent to Capitol Hill, which will push the health care agenda even further left, decreasing the likelihood for bipartisan middle ground," the TD Securities analysts wrote.

Caveat: It's difficult to attribute all of the recent move higher in health care stocks solely to the looming elections.

• There has been a simultaneous move by investors into other defensive areas of the market, such as consumer staples, amid a cooling off of the previously booming AI trade.
• Some of the uptick for health care might be driven by similar dynamics.