Weekly Update 07/24/2026: US Ten Year Treasury Pierces 4.7% as Conflict in Mideast Escalates
- AT&T, Alphabet and Kinder Morgan all release earnings beating profit and revenue expectations on strong quarter
- Otis releases earnings beating revenue estimates but lowers next fiscal year guidance
- RTX releases earnings beating profit and revenue expectations while raising forward guidance
- NextEra releases earnings beating profit and revenue expectations on strong quarter while reaffirming forward guidance
Domestic Economic News
A surge in oil spurred by the escalating Iran war sent stocks and bonds lower. Brent crude hit $100 a barrel, stoking inflation fears and driving Treasury yields to their highest levels of the year. The US Ten-year Treasury actually rose above 4.7% in early Thursday trading. This is a key interest rate because US mortgage rates are set with the Ten-year rate as the base. The odds of a Fed rate hike have now increased for the July meeting to a 40% probability of a hike. It may seem counter-intuitive, but a Fed hike - designed to contain the rate of growth in inflation – would potentially slow the rate of increase in the Ten-year as it would pressure economic growth. President Donald Trump said he’ll hold Iran responsible for any further attacks by the Yemen-based Houthis on Red Sea ships, potentially widening Washington’s involvement in a Middle East war that shows no sign of abating. The Iran-backed Houthis earlier claimed attacks on two Saudi Arabian oil tankers, the group’s first for several months and opening a new front in the US-Iran conflict that has already disrupted global energy supplies and rattled bond markets.
In a bit of good news on the economic front, first-time applications for US unemployment benefits fell last week to the lowest level since 1969, signaling layoffs remain muted in a stable labor market. Initial claims fell by 22,000 to 187,000 in the week ended July 18, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 210,000 applications. Continuing claims, a proxy for the number of people receiving benefits, were little changed at 1.8 million in the previous week. The low level of claims suggests employers remain reticent to lay off workers. Still, last month’s jobs report showed many Americans left the labor force, which could also help explain fewer filings for unemployment insurance. Here’s what Bloomberg Economics had to say: “A bigger-than-expected decline in initial jobless claims reflects an imperfect seasonal adjustment process. Overall, the data continue to reinforce signs of limited layoffs ahead of the July 28–29 FOMC meeting. Elevated corporate profit margins are allowing firms to invest while retaining workers, leaving the Federal Reserve focused on the inflation side of its dual mandate.” — Eliza Winger.
Interest Rate Insight and the Fed
The US 30-year bond yield is trading above 5% for the longest stretch since the dawn of the financial crisis, echoing investor concerns about a growing debt pile and sticky inflation. So far this year, the 30-year has traded beyond 5% for 27 days — or about 19% of all sessions, the most since 2007, according to data compiled by Bloomberg. It traded above that level for 50 days that year. Unlike 2007, however, the Federal Reserve’s benchmark is 150 basis points lower currently, suggesting investors are demanding even more compensation for holding the longest maturity sold by Treasury than at the start of the subprime debt woes. Behind the sustained rise in long-dated yields is growing concern about a deteriorating fiscal picture, just as a deluge of issuance to fund artificial intelligence infrastructure is flooding the corporate debt market. That’s stirring comparisons to the era of “bond vigilantes,” popularized in the 1980s when investors dumped government debt, driving yields higher to enforce fiscal discipline. “The bigger impact is the very high level of sovereign debt and deficits that is keeping longer rates elevated,” said Tony Rodriguez, head of fixed-income strategy at Nuveen Asset Management. Since 2007, the Treasury market has ballooned to $31 trillion from $4.5 trillion while debt as a percentage of US gross domestic product has doubled to exceed 100%. All told, years of excessive spending have propelled annual interest costs above $1 trillion. The US isn’t alone among global governments having to finance large debt piles that soared since the 2020 pandemic. Still, with the exception of the UK, US 30-year yields are trading higher than other big debtors like Japan and France. Fitch Ratings recently warned the US debt burden sits “far above” other nations that share its AA score. Debt concerns prompted Hoisington Investment Management Co., a renowned bond bull on the US long end for decades, to throw in the towel earlier this month, citing a “broader structural backdrop” of larger fiscal deficits and higher capital demand that could keep inflation and long-end yields higher. Competing for debt buyers is also the over $500 billion financing linked to AI. For fund managers, that’s a reason 5% plus yields are here to stay unlike similar spikes in the past. “In every one of the instances that we saw 5% in the last few years, it was quickly bought,” said Alex Payne, senior portfolio manager at Vanguard Capital Management. Traditional buyers of 30-year bonds, such as pensions and insurers now have “a wider menu of options than they’ve had in years past,” said Payne, adding that he isn’t sure yields have reached the highs yet.
Impactful International News
Canada’s inflation rate slowed by more than expected last month as gasoline prices eased and a key measure of core inflation dropped below 2% for the first time in nearly six years. The consumer price index rose by 2.8% in June, Statistics Canada reported on Monday. That’s down from 3.2% in May, and lower than the 2.9% rate expected in a Bloomberg survey of economists. The average of the Bank of Canada’s preferred median and trim measures of core inflation was 1.85%, marking the lowest rate since September 2020 and the first time the metric has fallen below 2% in nearly six years. The softer-than-expected inflation report adds more evidence that inflationary effects of the Iran war aren’t yet spreading beyond fuel. The Bank of Canada has warned it may have to raise interest rates if higher energy costs feed into other prices, but cooler core inflation suggests economic slack is offsetting price pressures from the war. “This report confirms the recent view from the bank that higher energy costs are not leading to broad inflationary pressures,” said Charles St-Arnaud, chief economist at Servus Credit Union. “However, with gasoline prices remaining elevated and oil prices increasing in recent weeks — leading to continued elevated freight costs — it is probably still too early for the bank to lower its guard.” The loonie fell to the day’s low versus the US dollar after the release of the report.
Company Events
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