Investors enter October carrying a picture of the month assembled from three dates: 1929, 1987 and 2008. Amos Tversky and Daniel Kahneman identified the mechanism in 1973 in a paper on the availability heuristic: people judge how often something happens by how easily examples come to mind. A crash is easy to recall. A month in which stocks rise 1% is not.
The record is less ominous than the memory. From 2001 through 2025, the S&P 500 finished October higher in 16 of 25 years, averaging a gain of 1.6%. The S&P/TSX Composite finished higher in 17 of 25, averaging 0.4%. Those figures come from an analysis of Bloomberg data by Stan Wong, published by BNN Bloomberg on October 1.
The Availability Heuristic Is Pointing at the Calendar
October does earn its reputation for turbulence. The same analysis found that October carried the highest average VIX of any month over the 25 years, at approximately 21.8. The month is volatile far more reliably than it is negative.
That combination is where loss aversion does its work. Daniel Kahneman and Amos Tversky showed in 1979 that losses loom larger than equal gains, and their 1992 follow-up estimated the ratio at about 2.25 to 1. In 1995, Shlomo Benartzi and Richard Thaler argued that loss aversion combined with frequent portfolio evaluation makes equities look less attractive than their long-run record warrants. A volatile month produces more down days, more evaluations and more reminders of loss, even when the monthly average is positive.
The Dial Investors Watch Is Reading Calm
The Cboe Volatility Index is the dial most investors associate with fear. It is derived from S&P 500 option prices and measures expected volatility over the next 30 days. It does not measure the bond market.
The VIX has closed between 14.21 and 17.84 in every session since September 2, ending at 16.39 on October 1, 5.4 points below its 25-year October average, even as the 10-year Treasury yield touched its highest level since 2002.
The 21.8 reference line is an average of daily closes across 25 Octobers from 2001 through 2025 and includes crisis years such as 2008. The September 28 gain came as the 10-year Treasury yield pushed past 5.2% after President Donald Trump rejected ceasefire conditions set out by Iran, according to Qz.
The strain sits in that other market. The 10-year Treasury yield reached 5.342% on October 1, its highest level since 2002, after the largest quarterly rise in yields this century, according to Reuters. It closed at 5.243%, according to CNBC. The Canadian 10-year yield reached 3.99% in early trading, near its highest since 2023.
Reuters attributes the global rise in yields to soaring energy costs that fan inflation and to the AI and data centre building boom, which lifts expectations for growth and for where short-term rates settle. The S&P/TSX Composite closed at 35,154.76 on October 1, down 2.6% over the month and 5.2% below its August record of 37,069.11, though still 16.6% higher than a year earlier.
Mental Accounting Makes Bond Losses Harder to Absorb
Richard Thaler described the pattern in a 1999 paper on mental accounting: people sort money into separate buckets, each with its own rules. The research predicts that a decline in a bucket labelled safe is felt differently from the same decline in a bucket labelled growth, because the safe bucket was never given a loss budget.
The decline is real, and so is the opportunity. Mark Malek, chief investment officer at Siebert Financial, said, according to the Wall Street Journal: "Existing bondholders have absorbed painful price declines, but new capital can now lock in yields unavailable for much of the past two decades." Both halves are true at once, which makes the moment difficult to read from a statement alone.
Canadian investors face two scheduled evaluation points. Statistics Canada releases September inflation on October 19, and the Bank of Canada announces its next rate decision, with a new Monetary Policy Report, on October 28. The Bank held its policy rate at 2.25% for a seventh straight decision on September 2. Under the Benartzi and Thaler mechanism, each date is another moment when portfolios are checked and losses are felt.
The Fear Is Reasonable but Aimed at the Wrong Dials
The anxiety is not irrational. A 24-year high in the 10-year Treasury yield is a real event with real consequences for bond prices and borrowing costs. The behavioural risk is that attention lands on the calendar, which Wong describes as a poor basis for short-term market timing, and on a volatility index that does not measure rates.
None of this forecasts October. It describes where attention is likely to be misallocated: toward the vivid story of a crash arriving on schedule and away from the slower repricing under way in government bonds.