THP Special Report: The Eve of Walpurgis (September 30, 2025)

0. 9/30 - Walpurgis Occurrence Probability Forecast for the US Fiscal Year End

Conclusion: Probability of Occurrence is "Critically High"

The probability that the approximately $481 billion U.S. Treasury bond auction scheduled for today, September 30, 2025, will directly trigger a systemic financial crisis, "Walpurgis," is assessed as "Critically High." This is not due to the sheer size of the auction (a quantitative problem), but rather to three structural flaws undermining the very foundation of the market reaching a critical point (a qualitative problem).

1. Structural Impairment of Market "Absorptive Capacity": Due to post-financial crisis regulations (especially SLR), the intermediary function of Primary Dealers (PDs), who should act as shock absorbers for the market, has been severely degraded. Their share of successful bids for U.S. Treasury bonds has fallen to a historically low 4.2%, making them unable to serve as the market's last resort.
2. Deterioration and Instability of Buyer "Quality": The void left by the retreat of PDs is being filled by unstable demand sources of a different nature, such as foreign government-affiliated institutions sensitive to geopolitical risks (indirect bidders) and stablecoin issuers dependent on unregulated digital financial systems. Their demand carries the risk of evaporating without warning due to changes in U.S. political and diplomatic situations or stress in entirely different markets.
3. Collapse of Trust due to Political and Policy "Triple Whammy":
   • "Data blackout" accompanying the confirmed government shutdown deprives the market of its compass, raising uncertainty to an extreme.
   • President Trump's capricious proliferation of tariff policies has exposed U.S. policy itself as an unpredictable source of risk.
   • The observed "dollar selling, gold buying" trend in response to these factors is a decisive sign that the U.S.'s status as a "safe haven" has already been fundamentally shaken.

Redefining "Failure"

"Failure" in today's risk scenario does not merely refer to a technical bid shortfall (a situation where bids do not meet the issuance amount). Even if the auction formally concludes, if its outcome is a disastrous result such as a significant widening of the tail, a marked decrease in the bid-to-cover ratio, or an abnormally high allocation to PDs, it will be regarded as a "de facto failure" indicating a complete loss of market confidence. This "de facto failure" is the true Walpurgis that will ultimately destroy confidence in the dollar and trigger a global liquidity crisis (cascade collapse).

Market movements up to September 29 suggest that this triple whammy has already inflicted serious damage on the market. Therefore, there is no material to deny the possibility that today's auction could be the final blow that this wounded system cannot withstand.

1. Summary: A Singularity Where the Triple Whammy Converges

On September 30, 2025, global financial markets closed, each harboring different tensions, drawn towards the "singularity" of America. Europe held its breath before the political risks emanating from the U.S., Tokyo quietly hedged its risks, and China reflected a policy-driven bifurcated economy.

The quietness of this day was extremely deceptive, and traditional market volatility indicators failed to capture the increasing systemic risk unfolding beneath the surface. The structural fragility of the U.S. Treasury market, which forms the bedrock of the market, continues to erode even at this moment.

Today's situation will be remembered as a day when three immense pressures reached a critical point:

1. Political Dysfunction
2. Unpredictable Policy
3. Structural Market Fragility

The market now stands on the brink of a financial "Walpurgis Night" where hidden risks will erupt simultaneously.

2. Market Movements

European Market: The Calm Before the Storm

The European market was enveloped in a comprehensive risk-off mood as the deadline for the U.S. government shutdown approached. Major stock indices (STOXX 600, CAC 40, DAX) all saw slight declines.

• Surface: News headlines reported "slight declines due to caution over U.S. government shutdown."
• Depth: This movement indicates investors are in a "wait-and-see" state, not panic. The biggest concern is not the shutdown itself, but the fear of a "data blackout" where crucial economic indicators such as U.S. employment statistics will not be released. The uncertainty of the FRB and the market being forced to navigate "blindfolded" has plunged the market into a near-dysfunctional calm.

What the European market showed was a posture of holding its breath, waiting for the coming storm.

Chinese Market: A Tale of "Two Chinas"

Ahead of the long National Day holiday, the Chinese market vividly reflected a policy-driven "K-shaped" economy.

• New China: State-supported sectors such as semiconductors (e.g., SMIC) and EVs were enthusiastically bought in the Hong Kong market.
• Old China: Sectors struggling with the real estate downturn (e.g., China Overseas Land & Investment) and stocks suffering from sluggish domestic consumption (e.g., Meituan, Kweichow Moutai) continued to decline.

While the official PMI remained in contraction, the private PMI showed expansion, with macro indicators themselves supporting this dual structure. The market closure from October 1st to 8th means losing one buffer against potential external shocks during this period.

Tokyo Market: Quiet Risk Hedging

The Nikkei 225 in the Tokyo market saw minor fluctuations, appearing calm at first glance. However, clear risk-hedging movements were underway internally.

• Sectors Bought: Financial sectors such as Mitsubishi UFJ Financial Group were bought on expectations of domestic monetary policy normalization.
• Sectors Sold: High-tech and export sectors directly exposed to the threat of U.S. economic slowdown and tariff policies, such as SoftBank Group, Advantest, and Honda, were sold.

This divergence between sectors is evidence that the market is quietly but surely pricing in "U.S. vulnerability."

3. The American Singularity: The Structure of the Triple Whammy

A. Political Dysfunction: "Data Blackout"

Late on September 30, the provisional budget bill was not passed, and a partial government shutdown was confirmed from October 1. What fundamentally differentiates this shutdown from previous ones is that it will cause a "data blackout," delaying the release of crucial economic indicators such as employment statistics and CPI. This will force the market and the FRB to "fly blind," raising uncertainty to an extreme. Furthermore, there are reports that the Trump administration is considering permanent layoffs of federal employees, potentially leading to severe damage to administrative functions.

B. Presidential Whim: Unpredictable Tariff Policies

President Trump's proliferation of tariff policies is amplifying uncertainty. His sudden announcements of additional tariffs on pharmaceuticals and movies via social media have exposed the unpredictability of the policy-making process.

Because the source of this risk is the U.S. itself, investors are increasingly selling both the traditional safe-haven assets of the dollar and U.S. Treasury bonds, and are increasingly viewing gold as a new safe haven. On September 29, the dollar index fell, and gold prices hit an all-time high. This is a dangerous sign that the U.S.'s status as a "safe haven" has been fundamentally shaken.

C. Impairment of Market Structure: Weakened Primary Dealers

Due to post-financial crisis regulations (especially SLR), the intermediary function of Primary Dealers (PDs), who underpin the U.S. Treasury market, has been structurally impaired. The share of successful bids by PDs, who once absorbed 80% of new issues, has now plummeted to 4.2%.

This void is being filled by unstable buyers of a different nature, such as foreign governments vulnerable to geopolitical risks (indirect bidders) and stablecoin issuers dependent on unregulated cryptocurrency markets. With the market's last resort weakened, the U.S. Treasury's funding is built upon an unprecedentedly dangerous structure.

4. Walpurgis Forecast (October 1-8)

The first week of October, where these triple whammies converge, sets the perfect stage for a financial "Walpurgis Night."

• Overture (October 1-2): Realization of government shutdown and data blackout. The market prices in uncertainty, leading to stock declines, dollar weakness, and gold strength. The absence of the Chinese market is likely to reduce liquidity and amplify price volatility.
• Chaos (October 3-6): The first Friday without employment statistics arrives, and uncertainty peaks. The focus shifts to the short-term money market, and there is a possibility of SOFR rates, etc., surging due to funding stress. Weakened PDs will be unable to perform their intermediary function, potentially triggering the first "flash crash."
• Walpurgis Night (October 7-8): At the start of the week, funding stress continues, and forced liquidation of positions by leveraged players begins. As PDs cannot absorb the selling, prices plummet. President Trump may seize this opportunity to further inflame the market with comments on social media.

At this time, political instability will expose the structural fragility of the short-term money market, which will trigger a collapse in asset prices, and further political intervention, completing an uncontrollable negative feedback loop. The first week of October will be an extremely dangerous week where the risks inherent in modern financial markets will be most exposed.