On July 31st, the US 30Y Note Yield rose to 5.27%, the highest level since 2007.

This officially marks a +450 basis point rally since the low seen in the 2020 pandemic.

Even as the Fed kept interest rates PAUSED at the July meeting, it did nothing.

Yields just keep climbing.

But, why?

First, we began the year with market expectations for 3 rate CUTS in 2026.

This quickly shifted to 2 rate HIKES expected in 2026.

Expectations shifted for rates to be 125 basis points higher in a matter of months.

The 2025 global rate cut cycle came to a halt.

As the Iran War drove oil prices to $100+ per barrel, inflation expectations hit 5%+ by November.

This left the Fed with no option but to halt rate cuts and begin considering rate hikes.

Month-over-month inflation in March and April came in at +0.9% and +0.6%, respectively.

Today, oil prices are well below their recent highs, but remain +55% above pre-war levels.

Furthermore, Fed expectations have shifted toward a continued pause through the end of 2026.

Meanwhile, yields keep on pushing higher amid record deficit spending and inflation worries.

Today's intervention by the US Treasury is notable.

Treasury buybacks work by repurchasing older, less-liquid bonds, giving investors a steady buyer while new debt issuance continues.

The goal is to improve liquidity and ease upside in yields.

In other words, they blinked.

This also marks the second most notable bond market intervention by the Trump Administration.

In April 2025, President Trump said he was watching the bond market when he decided to announce his "90-day tariff pause."

The 10Y Note Yield is now above the peak seen then.

Take a look at the wording of today's press release.

The doubling of buybacks to $4 billion per operation is in effect from Sept 9th through Nov 4th.

However, the treasury says it will provide "more information" about futures buybacks on Nov 4th.

We expect more intervention.

The reality is that the US government needs lower interest rates more than anyone.

Over the last 12 months, the US spent $1.4 trillion on interest alone.

By November 2028, this is expected to hit $1.7 trillion per year.

Borrowing costs have more than doubled since 2020.

For US debt servicing costs to simply stop going up, the US 5Y Yield needs to fall to 3.25%.

This means a -110 point drop would simply keep us at $1.4 trillion in annual interest costs.

The bond market has arguably become the most important long-term fundamental to watch.

We believe the bond market will continue to serve as a key leading indicator for investors.

As a result, we continue to update our models.

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Lastly, mortgage rates are back on the rise and we expect new record lows in housing affordability.

Without further intervention, we expect 7%+ mortgage rates.

The era of "free" money has come to an end.

Follow us @KobeissiLetter for real time analysis as this develops.

This week, something extraordinary happened.

Despite markets seeing a 40% chance of a Fed rate hike, the Fed did NOT hike rates.

Yet, the US 30Y Yield rose to its highest since 2007.

The most interesting part is the timing of this move, most of which came AFTER the decision.

This is unusual.

The Fed decision was less restrictive than expected, but rates moved in a more restrictive direction.

Why? Because we are in a new era of Fed policy.

Fed Chair Warsh explicitly said on Wednesday:

The Fed wants markets "to play the ball, not the referee."

While the Fed did NOT raise rates, they made it clear that inflation needs to fall to 2%.

For decades, Fed policy has effectively been driven by guidance.

The power of the Fed was largely in their words.

Now, the exact opposite is happening, leading to immense uncertainty.

So, while the Fed is explicit in their 2% inflation target, uncertainty is everywhere.

We know the Fed wants 2% inflation, but how will it get there?

Couple this with ~4% US inflation, record deficits, and the Iran War energy shock.

Markets are simply bidding yields higher.

Just 8 months ago, the below was consensus.

Core inflation was expected to fall to 2.3% by December and markets saw 3 rate CUTS.

Now, markets are pricing in 2 rate HIKES by January and the Fed is not pushing back.

In fact, the Fed is encouraging the market to do as it wishes.

In our view, the Fed's hands are tied.

While Trump appointed Warsh expecting rate cuts, the Fed simply cannot cut right now.

The most "dovish" course the Fed can take without sending inflation to 5%+ is exactly what is happening:

"Pause" and let the market dictate itself.

This means higher rates are coming even without rate hikes.

The issue then becomes that higher rates are coming at a time of record borrowing.

Over just 5 months, AI companies have borrowed $236 BILLION to fund AI.

The US government has borrowed $1.4 TRILLION in 9 months.

For consumers, this is worse.

A record 16.4% of student loans transitioned into 30+ days delinquency in Q4 2025, BEFORE this rate increase.

Credit card serious delinquencies hit 13.1% in Q1 2026, the highest since 2010.

The average car borrower is a record $7,200 underwater.

Without a major crisis, rate cuts are distant at best.

But, this comes amid one of the biggest technological revolutions ever.

We are seeing $1+ trillion in big tech CapEx in 2026 combined with 3.5%+ inflation.

We expect a further broadening of the record US wealth divide.

We expect even further erosion in consumer sentiment.

In April, US consumer sentiment collapsed -10% to its lowest level on record in data going back to 1952.

Not even the 1980s saw Consumer Sentiment this low.

We think it heads even lower, particularly for non-asset owners.

Unusual times lead to unusual opportunities in the market with elevated volatility.

We seek to position ourselves for these moves in advance.

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The Fed must now avoid a repeat of inflation in the 1970s.

While Americans are still struggling with high rates, inflation is the biggest involuntary tax in history.

We can't afford a return of 5%+ inflation.

Follow us @KobeissiLetter for real time analysis as this develops.