Piedmont Special Report · August 23, 2026
A special outlook ahead of Jackson Hole. Chair Warsh has removed the Committee’s guidance on purpose and Secretary Bessent has stepped into the long end on purpose, and Friday is the first chance anyone has had to hear what the first of those two is for.
Two principals, two theories of price
Chair Warsh delivers his first Jackson Hole keynote on Friday morning, nineteen days before the September meeting, and he does it into a bond market that has stopped being sure what he is for. He took office on May 22. The market has three months of votes, one press conference and one round of testimony to read him by, and in that time the 30-year has closed at or above 5 percent for thirty-four consecutive sessions.
Chair Warsh has withdrawn forward guidance deliberately. He declined to submit a dot in the June projections, cut the statement to its shortest non-emergency length on record, and told the July press conference that market participants are “learning to play the ball, not the referee.” Secretary Bessent has moved the other way. He doubled long-end buybacks on Wednesday, said the next day the number “could be more than the $4 billion per issue,” and framed the purpose as signaling.
One official is trying to take his own footprints out of the price. The other is trying to put his in. Investors are pricing a curve on which both are true.
The front end led the first half. Duration is leading now.
On the Federal Reserve Board’s own three-factor model, the 10-year term premium was 0.84 percent on August 14. That is positive and it is not extreme. More to the point, the first half of this year was a front-end story rather than a duration story. The 2-year rose 72 basis points against 37 at the 30-year, which is a market repricing the odds of a hike, not one demanding compensation for term. It is only since June 30 that the split changes: of the 28 basis points the 10-year has added since then, the model attributes roughly half to term premium and half to expected short rates.
Why long rates have risen
The Federal Reserve Bank of Cleveland publishes a decomposition of the nominal Treasury curve into an expected inflation component and a real interest rate, estimated from yields, inflation swaps and surveys. The expected inflation piece has gone from 2.33 percent in January to 2.49 percent in August, a gain of 16 basis points. The real interest rate has gone from 1.67 percent to 2.20 percent, a gain of 53. The market decomposition says the same thing without a model: the 10-year TIPS real yield has risen 44 basis points this year while the 10-year breakeven has fallen 6.
This year’s rise in long-term interest rates has essentially nothing to do with expected inflation. That reframes the question from what people expect prices to do to what they demand for lending long, and those are separate arguments with separate cures.
What it has cost so far
The MOVE index, which prices implied volatility in Treasuries, closed the week near 73. By level, the Treasury market is calm. But it is the only cross-asset volatility gauge higher on the year, up roughly 15 percent, while the VIX made a 2026 low at 14.25 with the S&P 500 up 12 percent. Equity volatility is falling while rate volatility is rising.
The better test is dispersion. Reuters polled 22 bond strategists between August 6 and 11. The median had the 10-year at 4.50 percent in three months, which is 19 basis points below where it sits. Eighteen of the twenty-two said the risk to their own number was to the upside. That is not a distribution of views. That is a profession that does not believe its own consensus.
Five things we would listen for on Friday
- Any description of the reaction function, as distinct from forward guidance.
- The maturity composition of the portfolio, not just its size.
- Whether he characterizes the long-end selloff as a monetary problem or a fiscal one.
- The meeting calendar — there is a live discussion of moving from eight meetings a year to six.
- Anything on the inflation target itself, or on how inflation is measured.
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.
What we would do
For borrowers with a capital program, fund the tranche you are sure about before Friday and leave the optional tranche until after September 16. Thirty-year paper at 5.23 percent against a 2-year at 4.19 puts 104 basis points of pickup on the table for the last twenty-eight years of a curve that has repriced in one direction all year. The case for waiting rests on a fiscal package the administration has promised and not delivered and on a speech nobody has read. Neither is a financing plan.
For portfolios, we would stay cautious on duration and own the belly rather 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 none of the three is waiting on the Committee.
And for reading Friday itself, watch the rates market rather than the equity market. If the speech clarifies the reaction function, the first evidence will be in implied volatility and in the dispersion of strategist forecasts, and only later in the level of the 30-year.
The full report sets out each of those, the collision between a Fed that may shorten its portfolio and a Treasury buying duration back, and our call in a form that can be scored — including the marker we would check the week of October 5.
Also published today: The Long End Does the Tightening, this week’s View from the Piedmont — the market dashboard, the strait, the consumer, the data behind the forecast and our four scoreable calls. Read the weekly.
Treasury constant maturity yields are readings through Thursday, August 20, 2026. The Cleveland Fed decomposition is a model estimate and its components do not sum exactly to the nominal yield; we cross-check the conclusion against TIPS, which are exactly additive and say the same thing. Term premium estimates differ materially by model and we have not mixed them. All figures are subject to revision. This report 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.