Key Highlights

• Global curves steepen amid doubts over U.S. price stability
• China’s Politburo sends stimulus signals for H2
• Central bank gold purchases rose sharply in Q2

Chart of the Day

Low short-utilization rates in U.S. duration risk further steepening

Source: BNY; measures the fraction of outstanding bonds that have been borrowed and sold short, not yet covered or repurchased

The bond market’s reaction to the FOMC points to an emerging credibility concern, but positioning has amplified the move. Since March, markets have faced repeated supply shocks with clear inflation implications, yet longer-dated Treasurys have shown limited sensitivity. Our data indicate that short utilization in the 10-year-plus sector remains well below levels seen at the start of the year. The long end reacted briefly during the first weeks of the Iran conflict, but this was the only period when steepening risk clearly exceeded that elsewhere on the curve. The 7-10-year sector has also remained less responsive to inflation risk than shorter maturities.

That leaves little room for a shift in credibility perceptions. Japan has shown that even a high-savings, domestically funded economy can lose control of the long end. The U.S. is more exposed because household wealth is more equity-heavy and foreign ownership is higher. It’s too early to draw firm conclusions from one Fed decision, but the curve had priced very little risk that price-stability concerns would spread further out in maturity. The latest move therefore reflects an adjustment in probabilities as much as a policy judgment.

When a scenario is lightly priced, even a modest change in expectations can produce an outsized market response. In maturities beyond seven years, short utilization still has some way to rise before reaching this year’s highs. That gives the Fed time to recalibrate before positioning becomes more disorderly.

What's Changed?

Fed credibility: The Fed hold has shifted attention to the policy path. The 9–3 decision and Chair Kevin Warsh’s limited forward guidance split the Treasury curve. Front-end yields fell, while the 30y yield moved through 5.24% this morning. The move points to less immediate tightening risk, but also noticeable concern that inflation risks are not yet fully contained. Two inflation reports, two employment reports and Jackson Hole come before September. Data will now matter more than guidance.

Fiscal credibility: Japan faces a similar test. Prime Minister Sanae Takaichi plans to cut the food sales tax to 1% for two years and provide targeted household support. She has pledged not to rely on special deficit-financing bonds, but the detailed funding plan is still missing. The measures could ease cost-of-living pressure. Markets will focus on whether they can be financed without worsening Japan’s debt trajectory or pushing JGB yields higher.

China’s delivery test: The Politburo has pledged stronger countercyclical support, proactive fiscal policy, and further measures to boost domestic demand. It didn’t announce a major new package or firm timetable. The test is therefore execution. Policy adjustments must lift household spending, private investment and confidence, rather than simply add more supply-side support.

Earnings and inflation: Amazon and Apple report today. Their results will test whether AI investment is producing returns that justify the scale of capital spending. U.S. PCE inflation also matters. Another firm print would keep pressure on the Fed to show that its commitment to price stability is translating into a clear policy path.

Bottom line: Credibility now depends on delivery. The Fed must anchor inflation expectations. Japan must fund its promises. China must turn stimulus into demand. Technology companies must justify AI spending. Markets are less willing to take any of these outcomes on trust.

What You Need to Know

Bond markets pushed back against Fed Chair Warsh after the Fed held rates unchanged despite still-elevated inflation and recent hawkish messaging. Long-dated Treasuries sold off, with the 30y yield rising near 5.23%; shorter-dated yields fell as traders reduced expectations for an immediate hike. The curve steepening suggests investors are questioning whether the Fed can keep inflation expectations contained without acting sooner. Warsh argued that higher long-term rates are already tightening financial conditions, but the market response showed some discomfort with the lack of clearer guidance. The broader implication is that communication alone may not be enough: if inflation data remain firm, pressure on the Fed to validate its rhetoric with action is likely to build. S&P Mini +0.3% to 7,374, DXY +0.044% to 100.93, 10y UST +1.9bp to 4.696%.

China’s Politburo called for stronger policy implementation in H2, stressing proactive fiscal policy, increased counter-cyclical adjustment efforts, and bond fund use, alongside better coordination between fiscal and financial tools, to support domestic demand. Priorities include boosting consumption and investment, advancing major infrastructure and new-economy projects, deepening reform and opening-up, and accelerating industrial upgrading, including AI and future industries. It also emphasized tackling “involution” competition, resolving arrears to firms, supporting private business and platform economy development, stabilizing housing, local government debt, and financial risks, while safeguarding employment, livelihoods, food security, and disaster prevention. iFlow shows Chinese assets are receiving bids but hedging interest is clear. CSI 300 -1.1% to 4550, USDCNY +0.088% to 6.7583, 10y CGB -1.5bp to 1.714%

The World Gold Council said central bank gold buying in Q1 was much weaker than previously estimated, with purchases of only 57 tons, down 187 tons from the prior view and the weakest start to a year in more than a decade. Demand then rebounded sharply in Q2, with net buying reaching a record 289 tons, led by Poland and China. Despite that recovery, the council expects central bank gold purchases to ease this year and likely fall below 2025 levels. The report also noted Q2 outflows from gold backed exchange traded funds, softer bar and coin demand, weaker jewelry demand, and lower recycled supply. Mining and metal sector flows remain weak in iFlow, indicating poor investor confidence in price levels. Gold -0.015% to 4,066.96, Silver +0.074% to 57.771, Platinum -0.304% to 1,611.57

RBA Assistant Governor Sarah Hunter said Australia’s latest CPI data was “a touch softer” than expected, with the downside surprise in headline inflation mainly driven by lower fuel prices. She said inflation remains above the 2-3% target band and the RBA must keep pressure on price growth so higher inflation expectations do not become entrenched. On the labor market, Hunter said conditions are still somewhat tight, though job growth has held up “not too badly” in the first half of the year. She cautioned that monthly labor data are volatile, but underlying employment momentum remains resilient. Hunter also noted that weaker consumer sentiment has not yet clearly fed through to household spending. AUD remains positioned for improvement, but policy follow-through is necessary. ASX 0% to 5,857, AUDUSD +0.145% to 0.6951, 10y ACGB +7.7bp to 4.995%.

What We’re Watching

The Bank of England (BOE) is expected to keep rates on hold at 3.75%, with at most two dissents. Although headline inflation risk has picked up, the Monetary Policy Committee is focusing even more on softer inflation. Governor Andrew Bailey continues to stress that wage growth is also slowing. The new government’s fiscal policies will be a factor over the next few meeting cycles, and the BOE will be mindful of any changes in household behavior.

U.S. June Personal Income is forecast to ease to 0.3% m/m vs. 0.7% m/m. Personal Spending is forecast to ease to 0.4% m/m vs. 0.7% m/m. Real Personal Spending is forecast to ease to 0.4% m/m vs. 0.3% m/m.

U.S. June PCE Price Index is forecast at -0.1% m/m, 3.7% y/y vs. 0.4% m/m, 4.1% y/y in May. Core PCE Price Index is forecast at 0.2% m/m, 3.3% y/y vs. 0.3% m/m, 3.4% y/y in May.

U.S. Initial Jobless Claims are forecast at 200k vs. 187k prior.

U.S. Q2 advance GDP is forecast to ease to 2.0% q/q vs. 2.1% q/q. Personal Consumption is forecast to rise to 2.3% q/q vs. 0.5% q/q. Price Index is forecast to rise to 4.0% q/q vs. 3.6% q/q. Core PCE Price Index is forecast at 3.5% vs. 4.4% q/q prior.

Canada May Payroll Employment Change, 22.0k prior.

U.S. Treasury sells $110bn 4-week bills and $100bn 8-week bills.

What iFlow is Showing Us

Mood: iFlow Mood declined for the second consecutive day driven by strong demand for global sovereign bonds.

FX: Global flows were mixed with continued safe-haven flows to CHF and EUR. PEN also continued to see strong inflows. NZD, CAD, and COP saw outflows.

Fixed Income: Demand continued for G10 sovereign bonds, with European and Japanese sovereign bonds most popular. The same was not true for EM bonds, with Czech, South African, and Peruvian bonds all continuing to see outflows.

Equities: Equity flows were modest, with Colombian and Danish stocks seeing the most notable flows.

Quotes of the Day

“Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.” – Shelby Cullom Davis

“Bond selection is primarily a negative art.” – Benjamin Graham and David Dodd

Economic Details

Euro area GDP for Q2 2026 rose by 0.4% q/q, while EU GDP increased by 0.5%, according to Eurostat’s preliminary flash estimate. On an annual basis, output expanded by 1.0% in the euro area and 1.2% in the EU, up from 0.5% and 0.8% in the prior quarter. The release noted that Q1 growth had been flat in the euro area and 0.1% in the EU. Among available member states, Ireland led quarterly growth, while Belgium and Austria were unchanged. Eurostat said the figures are based on incomplete data and may be revised. Euro Stoxx 50 +0.37% to 6,272, EURUSD -0.079% to 1.1458, BBG AGG Euro Government High Grade EUR -2.3bp to 3.388%.

Germany’s gross domestic product in Q2 2026 rose 0.2% q/q on a price-, seasonally and calendar-adjusted basis, after an upwardly revised 0.4% increase in Q1. On a y/y basis, GDP was 0.9% higher in both price- and calendar-adjusted terms. Destatis said exports increased versus the previous quarter, while private consumption was subdued and investment declined. The statistical office also revised historical data back to 2011, with the biggest change in 2024, when GDP was now shown as flat instead of down 0.5%. DAX -0.16% to 25,420, EURUSD -0.079% to 1.1458, 10y Bund +2bp to 3.18%.

French GDP in Q2 2026 rebounded by 0.2% q/q after a 0.1% decline in Q1, according to INSEEs first estimate. Growth was supported by a positive net trade contribution of 0.6 points as exports jumped 2.6% and outpaced a 0.8% rise in imports, while inventories subtracted 0.6 points. Final domestic demand added 0.1 point. Household consumption edged up 0.2% and government consumption rose 0.4%, but gross fixed capital formation fell 0.3% for a second straight quarter. Total production increased 0.3%, led by services, while construction remained weak. CAC 40 +0.61% to 8,460, EURUSD -0.079% to 1.1458, 10y OAT +1.9bp to 3.98%.

Italy’s preliminary GDP estimate for Q2 2026 showed gross domestic product rising 0.2% q/q and 1.0% y/y in seasonally adjusted, calendar-adjusted chained volumes based on 2020 prices. The reading signals a slight quarterly slowdown, but the annual pace improved modestly from the previous quarter. Growth was supported by services, while agriculture and industry declined. On the demand side, domestic demand ex-inventories contributed positively, partly offset by a negative net external contribution. The report also lifted the carry-over growth for 2026 to 0.8% from 0.6%, implying a somewhat firmer starting point for the full year. FTSEMIB -0.12% to 51,384, EURUSD -0.079% to 1.1458, 10y BTP +1.8bp to 4.009%.

Spain’s inflation for July 2026, based on the INE advance estimate, rose to 3.5% y/y, up three tenths from 3.2% in June, while core inflation edged up one tenth to 3.0%. The monthly CPI change was 0.2% in July. The INE said the pickup reflected higher prices for vehicle fuels and lubricants and electricity compared with a year earlier. The harmonized index also strengthened, with the annual IPCA rate increasing two tenths to 3.8%, while harmonized core inflation was estimated at 3.4%. The monthly IPCA variation was minus 0.1%. The figures are an advanced estimate and will be revised next month. IBEX 35 +0.9% to 19,592, EURUSD -0.079% to 1.1458, 10y Bono +1.6bp to 3.637%.

The Swiss KOF Economic Barometer for June 2026 improved to 101.2 from a revised 98.6 in May, rising 2.6 points and moving slightly above its long-term average. The release signaled a noticeably better outlook for the Swiss economy after several months below trend. Gains were broad based, with the strongest support coming from manufacturing, while construction also contributed positively. On the demand side, indicators for foreign demand and private consumption turned more favorable. Within manufacturing, the outlook improved notably for textiles, machinery and equipment, and paper and printing products, suggesting firmer production momentum ahead. SMI -0.11% to 14,471, EURCHF +0.166% to 0.93443, 10y Swiss GB +1.2bp to 0.446%.

Czech Republic GDP preliminary estimate for Q2 2026 showed the economy increased by 0.4% q/q and 2.0% y/y. The Czech Statistical Office said the quarterly gain was supported by stronger final consumption expenditure and a positive contribution from the trade balance, while gross capital formation weighed on growth. GDP y/y was mainly lifted by household consumption and firmer external demand. Gross value-added rose, helped especially by industry, with services also performing well. Employment increased by 0.2% q/q and by 0.9% compared with the same quarter a year earlier. Prague SE -0.29% to 2,676, EURCZK -0.025% to 24.172, 10y CZGB +0.7bp to 4.973%.

Australia’s June 2026 Building Approvals reported seasonally adjusted total dwelling approvals rose 7.2% m/m to 18,328 (after -1.6% in May). Private sector houses were up 0.4% m/m to 10,631, and dwellings excluding houses surged 17.8% m/m to 7,138. On building values, total building work approved fell 5.5% m/m to $20.00bn after a strong May. Residential building rose 15.1% m/m to $11.75bn, driven by new residential construction, while alterations and additions declined. Non-residential building dropped 24.7% m/m to $8.26bn. Trend measures still point to broad-based growth in dwelling approvals and residential building value. ASX 0% to 5,857, AUDUSD +0.145% to 0.6951, 10y ACGB +7.7bp to 4.995%.

Australia’s June 2026 international trade price indexes showed export prices rose 1.1% q/q and 3.9% y/y, while import prices increased 5.7% q/q and 6.2% y/y. Export prices were lifted mainly by coal, coke and briquettes, petroleum and related products, and crude fertilizers, while gold and metalliferous ores partly offset the rise. On an annual basis, coal and gold were the main supports, with gas and metalliferous ores weighing on the index. Import prices were driven higher by petroleum and related products, fertilizers, and plastics in primary forms, while gold was the main drag. On a yearly basis, petroleum, gold and non-ferrous metals led gains, offset by weaker telecommunications equipment and apparel prices.

New Zealand Business confidence improved sharply in July, with the survey measure rising 19 points to 56, while expected own activity increased 12 points to 49. Reported past activity edged up one point to 10. Inflation signals softened in the initial responses: inflation expectations eased to 3.14% from 3.36%, cost expectations fell to 78 from 85, and pricing intentions declined four points to a net 47% expecting to raise prices over the next three months. However, responses received later in the month, after a reminder was sent, showed weaker activity and firmer inflation pressures. The deterioration coincided with higher oil prices and the RBNZ’s OCR hike between the early and late response periods. NZX 50 -1.53% to 13,763, NZDUSD +0.485% to 0.5806, 10y NZGB +8.3bp to 4.731%.

South Korea’s July 2026 Business Survey and Economic Sentiment Index improved. The Composite Business Sentiment Index for all industries rose to 98.5 from 97.7 in June, while the outlook for next month increased to 96.5. Manufacturing led the gain, with its CBSI climbing to 103.2 from 101.2, supported by better business conditions, production, and new orders; its outlook also strengthened to 100.5. Non-manufacturing was broadly softer, with CBSI edging down to 95.2 from 95.4, though the outlook improved slightly to 93.7. The Economic Sentiment Index, which combines business and consumer surveys, rose to 97.9 from 96.8. Overall, the report points to firmer sentiment in manufacturing and a modest pickup in aggregate economic sentiment, despite mixed conditions in services. KOSPI -1.23% to 5,594, USDKRW +0.32% to 1438.9, 10y KTB -3.7bp to 4.255%.

The Philippines’ June 2026 trade data showed a record-high external trade level, with total goods trade rising 21.3% y/y to $22.48bn. Exports jumped 24.1% y/y to $8.77bn, the strongest since series start, led by electronic products, gold, and electronic equipment and parts. Imports increased 19.6% y/y to $13.711bn, also at a series high, with electronic products, mineral fuels, and transport equipment the main drivers. The trade deficit widened 12.3% y/y to $4.94bn, though it was the smallest since February 2026. On exports, the U.S. was the top destination, followed by Hong Kong, China, Japan, and Singapore. Imports were led by China, followed by South Korea, Japan, Indonesia, and the U.S. PSEi -0.74% to 6,306, USDPHP -0.251% to 61.542, 10y PHGB +9.8bp to 7.405%.