BELLY-LED REPRICING | LONG END RESILIENT | INFLATION PRESSURE RE-EMERGING

Treasury yields moved unevenly across the curve this week, with the strongest selling concentrated in the belly and intermediate maturities. The 6-month and 1-year yields declined 4bp and 2bp, respectively, while the 2-year, 5-year and 10-year yields increased 3bp, 6bp and 5bp. The 30-year Treasury rose only 2bp. The resulting curve geometry was therefore mixed: the 10Y–3M spread widened modestly, while the 30Y–2Y spread narrowed slightly.

The move occurred alongside a firmer inflation signal, with the 5-year breakeven rising 7bp to 2.37% and the 5Y5Y Forward increasing 1bp to 2.33%. Fed Funds Futures remained tilted toward additional tightening, although expectations for September became somewhat less aggressive at the margin. Credit markets became modestly less supportive, with HY OAS widening 8bp and the Baa–Aaa spread widening 1bp, while MOVE increased modestly.

Taken together, the week’s data suggest that intermediate policy-sensitive yields are being pressured by expectations for a relatively high cumulative policy rate, while the long end remains comparatively well anchored. The combination of firmer inflation compensation and modestly wider credit spreads points toward continued rate pressure without clear evidence of a broad deterioration in long-run growth expectations.

Macro Structure: Belly-Led Bearish Repricing with Long-End Resilience

• • • • Front end:
        • 3M → 3.91% (↑ +1bp)
        • 6M → 3.98% (↓ -4bp)
        • 1Y → 4.13% (↓ -2bp)

→ The front end was mixed rather than uniformly bearish. The 6-month and 1-year yields declined, while the 3-month yield increased marginally. This suggests that the market did not broadly reprice the entire near-term policy path higher.

The 1-year yield’s 2bp decline is particularly important. It indicates that, despite continued expectations for restrictive policy, investors are not assigning substantially greater probability to an immediate or near-term acceleration in tightening. The September meeting remains relatively balanced, while the medium-term policy path remains elevated.

• • • • Belly:
        • 2Y → 4.37% (↑ +3bp)
        • 5Y → 4.54% (↑ +6bp)

→ The belly continued to sell off, with the 5-year sector leading the weekly repricing. The 5-year yield’s 6bp increase suggests that markets continue to price a relatively elevated policy-rate path over the medium term.

The move also places the 5-year yield above 4.50%, reinforcing the broader theme of elevated intermediate-term borrowing costs.

• • • • Long end:
        • 10Y → 4.78% (↑ +5bp)
        • 30Y → 5.24% (↑ +2bp)

→ The long end also moved higher, but significantly less than the 5-year sector. The 30-year yield’s 2bp increase was particularly modest relative to the intermediate-sector repricing.

This relative resilience suggests that the market is not extrapolating the higher near-term policy path into a proportionally higher long-run rate structure. Term premium, long-duration demand, and expectations surrounding longer-run inflation and growth remain important counterweights.

Curve & Inflation Signals

The curve remained positively sloped, but its internal geometry was mixed.

• • • • 10Y–3M spread: +87bp (↑ +4bp)
      • 30Y–2Y spread: +87bp (↓ -1bp)

→ The two major curve measures moved in opposite directions.

The 10Y–3M spread widened 4bp, because the 10-year yield increased 5bp while the 3-month yield rose only 1bp.

Conversely, the 30Y–2Y spread narrowed 1bp, as the 2-year yield increased 3bp while the 30-year rose only 2bp.

This means the curve cannot accurately be characterized as a uniform bear steepener or bear flattener. Instead, the dominant feature was intermediate-sector repricing relative to the long end, with the 5-year and 10-year sectors absorbing the greatest upward pressure.

• • • • 5Y5Y Forward: 2.33% (↑ +1bp)
      • 5Y Breakeven Inflation: 2.37% (↑ +7bp)

→ Inflation expectations firmed this week. The 7bp increase in the 5-year breakeven is more notable than the modest 1bp increase in the 5Y5Y Forward and provides evidence that near- to medium-term inflation compensation became less benign.

The fact that inflation compensation increased while Treasury yields also moved higher provides support for an inflation component in the week’s selloff. However, the concentration of the yield increase in the 5Y–10Y sector suggests that inflation expectations alone cannot explain the move.

The more balanced interpretation is that expectations for a relatively high medium-term policy rate remain a primary driver of the repricing, while firmer inflation expectations provide additional support for elevated nominal yields.

Fed Policy Expectations

Fed Funds Futures remained biased toward additional tightening, although the September distribution became somewhat less aggressive at the margin.

• • • • September: The probability of no change increased from 32.46% to 39.31%, while the probability of +25bp declined from 52.96% to 46.15%. The +50bp probability remained essentially unchanged at 14.54%. The market therefore continues to lean toward a +25bp hike, although a September hike is far from fully priced.
      • October: The probability of cumulative +50bp remains at 50%, unchanged from last week.
      • December: The probability of cumulative +25bp increased from 56.53% to 64.20%, while +50bp declined from 29.12% to 22.56%. Markets therefore became somewhat less aggressive regarding the magnitude of cumulative tightening expected by year-end.
      • January 2027: The distribution became more balanced. The probability of no change increased to 14.61%, +25bp increased to 47.82%, while +50bp declined to 37.57%.
      • March 2027: The probability of +50bp remained essentially unchanged at 85.66%.
      • April 2027: Expectations shifted further toward +50bp, with the probability increasing to 96.44%.
      • June 2027: +50bp remains dominant at 85.65%, essentially unchanged.

→ The Fed futures curve remains structurally hawkish but internally inconsistent across individual meetings. Near-term and year-end expectations became somewhat less aggressive, while the market continues to price substantial cumulative tightening further into 2027.

This distinction matters. The Treasury selloff in the 2-year through 10-year sectors is consistent with markets maintaining a relatively high expected policy rate, but the futures curve does not describe a simple, steadily escalating tightening cycle.

Credit Markets

Credit conditions became somewhat less supportive this week.

• • • • Aaa: 5.92% (↑ +6bp)
      • Baa: 6.34% (↑ +7bp)
      • Baa–Aaa spread: +42bp (↑ +1bp)
      • HY OAS: 2.68% (↑ +8bp)

→ Both investment-grade and high-yield credit provided a modestly less constructive counterpoint to the Treasury selloff.

The widening in Baa–Aaa and HY OAS indicates that investors are demanding somewhat greater compensation for corporate credit risk, despite the relatively orderly Treasury repricing. However, the magnitude remains insufficient to characterize the move as a broad deterioration in credit conditions.

Credit therefore remains resilient, but less supportive of risk appetite than the previous week.

MOVE Index

The ICE Bank of America U.S. Bond Market Option Volatility Estimate (MOVE) Index measures implied volatility of U.S. Treasury yields, derived from options on Treasuries (primarily 2Y–30Y maturities). It’s commonly called the “VIX for bonds”, but more precisely, it reflects the market’s expectation of how much Treasury yields will move, not bond prices. It is a critical cross-asset signal.

• • • • Current reading: 73.10(↑ +2.13)
      • Leading Indicator: Rate volatility often transmits into equity volatility because discount rates underpin asset valuations.
      • Trend: MOVE remains within a relatively contained range after declining sharply earlier in the summer.
      • Interpretation: Treasury volatility increased modestly as intermediate yields repriced higher. The increase remains relatively limited given the magnitude of the move in the 5-year and 10-year sectors.

        → The rate-market repricing therefore remains orderly rather than disorderly. Investors are adjusting the expected level of policy-sensitive rates without exhibiting a major increase in uncertainty about the Treasury market itself.

      • Expected 10yr ranges (by timeframe):

Impact on Equities

• • • • Equity Valuation Pressure: Equity valuation conditions remain challenging despite the relative resilience of the long end.

• • • • Fixed income yields remain increasingly competitive relative to equity earnings yields

        • • 10Y Treasury: 4.78%
          • 30Y Treasury: 5.24%
          • Investment Grade Credit: 5.92% – 6.34%

→ The 10-year Treasury remains well above the 4.50% valuation threshold that represents an important line in the sand for equity discount rates. At 4.78%, the absolute level of the risk-free rate continues to impose a meaningful constraint on equity multiples, particularly for longer-duration growth stocks.

The more significant issue this week, however, was the increase in the 5-year and 10-year yields, which raises discount rates across a broader portion of the valuation horizon.

The modest widening in credit spreads provides less of an offset than it did the previous week, while the increase in MOVE suggests that the rate environment has become somewhat less benign.

→ Bottom line: Equity conditions remain mixed-to-challenging. The long end is relatively stable, but the elevated 10-year yield and renewed pressure across the belly continue to represent meaningful valuation headwinds.

Risk Appetite

Yield Curve Summary

Actual Results: Record Revenue and Profitability Progress

• Record quarterly revenue of $116.1 million, up 58% year-over-year and approximately 23% sequentially, driven by broad-based growth led by Defense & Intelligence customers.
• GAAP net loss of $9.4 million, or –$0.03 per share (improved from –$0.07 in the year-ago quarter).
• Non-GAAP net income of approximately $8.3 million and adjusted EPS of +$0.02 (beat consensus expectations of a loss).
• Non-GAAP gross margin of 59% (GAAP gross margin 57%).
• Adjusted EBITDA profit of $13.9 million, more than double the $6.4 million in the prior-year quarter.
• Backlog of approximately $815 million and remaining performance obligations (RPO) of $753 million.
• Cash, cash equivalents, and short-term investments of $865 million at quarter-end.

Why It Matters: Defense Momentum and Recurring Revenue Durability

• Defense & Intelligence demand is accelerating and now represents the dominant share of revenue growth, providing higher-visibility, multi-year contracts.
• 98% recurring ACV underscores the subscription-like nature of the core Earth observation data platform.
• Fourth consecutive quarter of meeting or exceeding the Rule of 40 (revenue growth + adjusted EBITDA margin) signals improving operating leverage alongside growth.
• Successful launch of the Pelican tech demo and shipment of Tanager-2 and SuperDove satellites support continued constellation expansion and product roadmap execution.
• Significantly strengthened liquidity (cash + investments up more than 2x year-over-year) provides flexibility for satellite manufacturing, AI-enabled solutions, and selective investments.

What’s Ahead: Raised Guidance and Continued Scaling

• For the third quarter of fiscal 2027 (ending October 31, 2026), Planet expects revenue of $101–105 million (approximately 27% year-over-year growth at the midpoint) and non-GAAP gross margin of approximately 56–58%.
• Full-year fiscal 2027 revenue guidance was raised to $430–441 million (40–43% year-over-year growth), with expectations for continued adjusted EBITDA profitability and positive free cash flow on an annual basis.
• Key focus areas include:
  • converting the elevated backlog and RPO into recognized revenue
  • expanding satellite services and AI-enabled solutions
  • growing the Defense & Intelligence footprint
  • maintaining high recurring ACV while scaling the constellation.

Risks to Forward Expectations: Contract Timing, Mix, and Investment Intensity

• Revenue can be influenced by the timing of large government and satellite-services contract milestones; sequential growth may not be linear.
• Non-GAAP gross margins can fluctuate with contract mix, depreciation from new satellite deployments, and investments in higher-value solutions.
• Sustained high CapEx for constellation replenishment and new capabilities remains necessary to support growth targets.
• Customer concentration in Defense & Intelligence, while currently a strength, introduces potential budget or procurement timing risk.
• Valuation remains elevated relative to current profitability, leaving the stock sensitive to any guidance misses or slower backlog conversion.

Bottom Line: Accelerating Growth with Improving Profitability

Planet Labs delivered a standout quarter with record revenue, sequential and year-over-year acceleration, narrowed losses, and expanded adjusted EBITDA profitability while raising full-year guidance. Strong Defense & Intelligence momentum, high recurring revenue, and a robust balance sheet position the company well for continued scaling through the remainder of fiscal 2027.

Near-term results will still reflect investment in satellites and solutions, but the combination of backlog visibility, Rule of 40 consistency, and rising adjusted profitability supports a constructive trajectory. Successful conversion of the backlog and sustained demand from government and commercial customers will determine how quickly Planet translates this growth into more durable GAAP profitability.

Actual Results: AI Cloud Inflection Amid Transition Costs

• Total Q4 revenue of $137.2 million, with AI Cloud Services contributing $70.5 million (more than doubling sequentially) and surpassing Bitcoin mining revenue ($66.7 million) for the first time.
• Full-year revenue of $707.0 million, up from $501.0 million in FY25, driven by AI Cloud growth to $128.8 million (from $16.4 million) and higher Bitcoin mining revenue.
• Adjusted EBITDA of $19.2 million in Q4 and $245.7 million for the full year (down modestly from $269.7 million in FY25 as the company invests ahead of the AI ramp).
• Large GAAP net losses ($684.0 million in Q4; $702.6 million for FY26) primarily reflecting non-cash impairments on mining hardware as capacity is repurposed for AI Cloud.
• Operating ARR (Annual Recurring Revenue) reached $1 billion following Microsoft’s acceptance of Horizon 1; $4 billion of ARR is contracted for 2026 capacity.

Why It Matters: Successful Pivot to High-Value AI Infrastructure

• AI Cloud has become the growth engine, with revenue scaling rapidly and now exceeding mining contribution in the latest quarter.
• $4 billion contracted ARR for 2026 capacity (largely sold out) and $1 billion already operating provide strong multi-year visibility and validate demand from hyperscalers, frontier labs, and AI developers.
• New multi-year contracts (including a leading frontier AI lab) plus customer wins such as Cohere, Perplexity, Figure AI, and others demonstrate diversification beyond the Microsoft relationship.
• Significant GPU financing (including $2.8 billion funding ~90% of associated CapEx) and customer prepayments reduce equity dilution and support accelerated deployment.
• Horizon 1 delivery to Microsoft and progress on Horizons 2–4 mark tangible execution on liquid-cooled, high-density AI capacity.

What’s Ahead: Capacity Delivery and ARR Ramp

• Management expects more than $4 billion of ARR by the end of the December quarter (already under contract, including Horizons 2–4).
• 2026 capacity is largely sold out, with late-stage discussions underway for a significant portion of 2027 capacity.
• Key focus areas include delivering the remaining Horizon deployments on schedule, converting the contracted backlog into operating ARR, scaling GPU deployments, and advancing 2027–2028 expansion (targeting cumulative ~0.8 GW IT by 2027 and a multi-GW longer-term pipeline).
• Pricing continues to strengthen (recent 3-year contracts >$20 million revenue per MW IT load).
• FY27 CapEx is guided at approximately $25–30 billion, supported by existing cash, committed financing, and prepayments.

Risks to Forward Expectations: Execution, Funding, and Transition Drag

• Near-term results remain pressured by the Bitcoin-to-AI transition, including impairments and lower mining contribution as capacity is converted.
• Delivery timelines for Horizons 2–4 and broader capacity build-out carry execution and supply-chain risk; any delays would defer ARR recognition.
• Very large CapEx plans ($25–30 billion in FY27) require continued access to GPU financing, customer prepayments, and capital markets on favorable terms.
• Customer concentration (notably Microsoft) and the need to successfully onboard and retain a diversified base of AI developers and enterprises remain important.
• High valuation relative to current profitability leaves the stock sensitive to any shortfalls in ARR conversion or capacity delivery.

Bottom Line: Transition Progressing with Clear Visibility

IREN delivered solid full-year revenue growth and a clear inflection in AI Cloud Services while absorbing the expected costs of exiting Bitcoin mining. The combination of $4 billion contracted ARR, Horizon 1 delivery, strengthened pricing, and substantial financing support positions the company for a meaningful revenue and ARR ramp through the remainder of calendar 2026 and into 2027.

Near-term GAAP losses and Adjusted EBITDA will continue to reflect investment and transition dynamics. Successful on-time delivery of remaining 2026 capacity and conversion of the contracted backlog into operating revenue will be the primary determinants of whether the AI Cloud platform translates into durable scale and improved profitability.