A View from the Piedmont · August 23, 2026
Thirty-four sessions with the 30-year Treasury at or above 5 percent, gross federal debt topping $40 trillion and Brent back above $93 moved the binding constraint on this expansion from the funds rate to the yield curve.
The week in brief
The week’s price action happened at the long end of the curve while the front end sat still. The 30-year Treasury touched 5.34 percent intraday on Tuesday, its highest since June 2007, and closed Thursday at 5.23 percent. It has now closed at or above 5 percent for thirty-four consecutive sessions, the longest such run since the summer of 2007.
Gross federal debt crossed $40 trillion on Wednesday, the same day Treasury doubled its long-end buybacks. Secretary Bessent raised the size of operations in the 10- to 20-year and 20- to 30-year sectors from $2 billion to at least $4 billion, effective September 9 through November 4. Yields fell on the announcement and gave the move back within a day.
Trade talks with Canada collapsed Friday night and 50 percent tariffs took effect Saturday morning under Section 338, the first use of that authority in the statute’s history, covering roughly $20 billion of goods with energy and potash exempt. Canada retaliates dollar for dollar on September 8.
The selloff was global, which rules out most of the U.S.-aimed explanations
The same week the 30-year Treasury touched 5.34 percent, the 30-year Japanese government bond climbed to 4.1 percent, the 30-year bund reached 3.7 percent and the 30-year gilt reached 5.8 percent. The Japanese level sits near a record. The German level is the highest since the euro-area debt crisis in 2011 and the British level is close to the highest since 1998. Four sovereigns with four fiscal positions, four central banks and four inflation histories sold off in the same maturity in the same week. Whatever is repricing is not the American deficit alone, and it is not the September FOMC.
The American case has been about as one-directional as a year gets. The 30-year began 2026 at 4.86 percent, spent February and March in the high fours, first closed above 5 percent on May 4, and has not closed below it since July 7.
Treasury’s response tested the supply-composition explanation and the test failed. Secretary Bessent announced on Wednesday that buyback operations in the 10- to 20-year and 20- to 30-year sectors would double from $2 billion to at least $4 billion, running from September 9 through November 4, and said the move reflected a view that yields do not reflect underlying fundamentals. The 30-year fell to 5.19 percent on Thursday and was back to 5.23 percent by the close. The whole announcement was worth about a day.
We expect the long end to stay in a 5.00 to 5.40 percent range through the September meeting. The conditions that would break that range are a fiscal package the market finds credible on the downside, or a Hormuz escalation that pushes Brent through $110 on the upside.
Hormuz is open and rationed
The strait is not physically closed and it is not functioning. Before the war, more than 100 vessels a day made the transit. Commodity transits this week have been running around nine a day. War-risk premia that used to run near 0.25 percent of hull value have been quoted at several percent and as high as 7.5 to 10 percent, which turns a single transit into a multi-million-dollar insurance bill before a barrel is sold. The binding constraint sits in the London underwriting market, not with the Navy, and it will loosen on the underwriters’ timetable rather than on the diplomats’.
Underlying inflation is still moderating
Our Hodrick-Prescott filter trend for core CPI slipped to 2.51 percent in July from 2.55 percent in June. It has now fallen for six consecutive months, from 2.89 percent last December. Core CPI rose 0.2 percent on the month and 2.47 percent over the year, the three-month annualized rate ran 1.64 percent, and six-month core ran 2.42 percent. The convergence of those measures is the strongest defense the trend estimate has.
Growth: the nowcast has round-tripped
GDPNow has given back everything it added in early August, and the path is more instructive than the level. The Atlanta Fed’s third-quarter estimate opened at 5.0 percent on July 30, jumped to 6.2 percent on August 3 and has fallen in four consecutive updates to 4.0 percent. The underlying demand signal never printed anything like 6 percent: real private domestic final purchases sits at 2.7 percent, close to the 2.5 percent median in the Philadelphia Fed’s third-quarter survey. A nowcast that has traveled 220 basis points in fifteen days is measuring the arrival of data, not a change in the economy.
The bottom line
The FOMC does not need to act, because the curve is acting for it. A 5.23 percent 30-year, a 6.65 percent mortgage and a 2s-30s spread near 104 basis points are tightening financial conditions in exactly the maturities that price capital spending and housing, and they are doing it without the Committee spending any of its credibility.
Underlying inflation is moving the right way and the labor market is soft in hiring while separations stay low. We stay cautious on duration and we would rather own the belly than the long bond. The three arguments pushing on thirty-year paper are fiscal, energy and the private credit demand behind the artificial intelligence buildout, and a buyback program addresses none of them.
Our calls, in a form that can be scored
- A hold on September 16, no cut in 2026, and a first hike in the first half of 2027. We are the only house we know of carrying that hike.
- The 30-year trades between 5.00 and 5.40 percent through the September meeting.
- Brent averages between $85 and $100 a barrel through year end.
- Either the August or the September payroll print comes in above 125,000.
Check us on all four the week of October 5.
Piedmont Perspective: The Shock That Already Happened
A chart has been circulating that shows the corporate profit share of national income at a postwar high and the compensation share near a postwar low. It sits behind a great deal of what candidates in both parties now say about wages. Our position is that the shift is real, the drawing overstates it, and the mechanism that caused it has already run its course.
Two of the three problems are in the drawing: mismatched axes that make the profit swings look about a fifth taller than they are, and roughly 16 percent of the profits in the numerator earned abroad against compensation paid entirely at home. The third is the seesaw itself, because factor shares do not sum to two. Net interest fell from 9.8 percent of national income in 1982 to 0.6 percent in 2025 while the profit share rose 8.4 points. Profits and net interest together now sit at 17.1 percent, below where they were in 1982. Capital’s total claim is not at a record. The large reallocation of the past forty years ran from creditors to owners, and disinflation did most of it.
What did move labor’s share was a labor supply shock, and the timing is the evidence. Essentially the entire decline happened between 2000 and 2010; China acceded to the World Trade Organization in December 2001; and in the fifteen years since, the compensation share has gone nowhere. A shock that explains a decade of decline and then stops is a shock that finished.
The abridged version runs in this week’s report. The standalone essay carries the three figures, the axis arithmetic, the literature and the sources, and it is the version to send anyone who wants to argue with the conclusion. Read The Shock That Already Happened →
The forecast table
Our outlook carries the quarterly path for the funds rate, the 10-year, the 30-year fixed mortgage and Brent through 2027. The funds rate path embeds no cut in 2026, a first increase in the first half of 2027, and a 10-year that ends next year higher than it starts. It is published in both of today’s reports so the calls in each can be checked against the same numbers.
Also published today: a special outlook ahead of Jackson Hole. Chair Warsh delivers his first symposium keynote as Chair on Friday, nineteen days before the September meeting. The Speech and the Curve sets out what we think he is trying to accomplish, what the missing reaction function has cost so far in rate volatility and forecast dispersion, and the five things we would listen for — along with what we would do about it in a funding calendar and a portfolio. Read The Speech and the Curve | The View from Jackson Hole →
Treasury constant maturity yields and the 30-year fixed mortgage rate are readings through Thursday, August 20, 2026. Equity, energy and metals levels are Friday, August 21 closes. All figures are subject to revision. This commentary is published by Piedmont Crescent Capital, LLC for informational purposes only and does not constitute investment, legal or tax advice. © 2026 Piedmont Crescent Capital, LLC. All rights reserved.