Economy

The 30-year U.S. Treasury yield has held above 5% for the first ten trading days of July 2026, but the driver is an expanding term premium — now estimated at 110–140 basis points for the 30-year bond — rather than rising inflation expectations, which remain anchored at 2.20% on the 5-year, 5-year forward breakeven. Record fiscal borrowing of $671 billion projected for Q3 2026 is pressuring long-end yields as the Treasury holds coupon auction sizes flat, forcing the market to absorb greater duration supply at higher yields. Foreign demand is shifting in composition, with Japanese holdings at a record $1.21 trillion while Chinese holdings have fallen roughly 12% year-over-year, leaving private asset managers as the marginal buyer clearing auctions only at significantly elevated yields.

CME FedWatch data and SOFR forward curves both point to the Federal Reserve keeping its target rate at 3.50–3.75% at the July 28–29 meeting, with markets pricing only one 25-basis-point cut for all of 2026, most likely in September or October. June FOMC minutes reveal three distinct factions among policymakers: a dovish group expecting cuts, a hawkish group citing AI demand and energy inflation, and a smaller contingent favoring no change through year-end. US strikes on Iran beginning July 7–8 pushed Brent crude from above $76 toward $100 per barrel, and the Dallas Fed estimates such an oil shock could add 0.3 to 0.7 percentage points to headline PCE inflation, making the June CPI release on July 14 the next decisive input for all three camps.