〔Overnight Brief〕Foreign Selling and War Headlines Push 30Y to 5.29% 2007 High, While Fed Hike Odds Slip to ~1/3 – Long-End Risk vs Front-End Easing

0. Weekly Arc

The overnight tape split the curve: the 30-year yield rose 3 bps to 5.29%, highest since 2007 ^[1], while Fed hike odds for next month slumped to roughly one-third from ~75% at end-July ^[2]. Foreign demand is draining: total overseas Treasury holdings fell $72.1B to ~$9.3T in June, the largest drop since March; Japan cut $26.4B and the UK $8.7B ^[3]. War headlines and oil added upward pressure on yields ^[4][5], and the long end's move is now threatening the 5.44% peak of 2007 ^[1].

1. Treasury Market: Long End at Pre-GFC Highs

• **[NEW] 30-year at 5.29%:** The yield rose 3 bps on Monday, reaching the highest since 2007, just below the 5.44% global-financial-crisis peak ^[1].
• **[NEW] Foreign selling:** Foreign holdings of US Treasuries fell $72.1B in June to about $9.3T, the largest monthly drop since March; Japan reduced by $26.4B to $1.12T, and the UK by $8.7B to $939.9B ^[3].
• **[NEW] HSBC on supply absorption:** If the Fed's SOMA portfolio does not grow as fast as Treasury supply, price-sensitive investors will have to absorb more of the government's financing needs, said HSBC strategists Dhiraj Narula and Ryan Wang ^[6].
• **[ONGOING] Citadel:** The Fed's reluctance to tighten after prolonged above-target inflation is keeping long yields at multiyear highs, said Citadel Securities ^[7].
• **[ONGOING] Barclays:** BarCap's US rates strategy head Anshul Pradhan says he remains against the view that the long-end selloff will soon fade; a constructive view needs a combination of a fiscal surprise, slower AI-related issuance, a change in Treasury issuance strategy, or persistently weak activity data ^[1].

2. Fed Policy: Front-End Repricing

• **[NEW] Hike odds slide:** The probability of a Fed hike next month has fallen to one-third, down from ~75% at the end of July, according to market pricing ^[2].
• **[NEW] SocGen:** Societe Generale's Kit Juckes says speculative dollar bulls are trimming because the case for long dollar positions is weakening; this month's data may be a false signal, but the question is whether to wait for September data or accept a USD index range of 95-100 for the rest of the year ^[8].
• **[NEW] SF Fed paper:** Research from the San Francisco Fed on Monday suggests that, measured against a medium-run neutral rate estimate, the Fed's current policy stance is accommodative ^[9].
• **[NEW] Morgan Stanley:** G10 FX volatility should stay low into early September as data aligns with the Fed holding rates this year, Morgan Stanley wrote ^[10].
• **[NEW] BNY:** Ella Gude, Head of Fixed Income at BNY Investments Newton, expects the Fed to keep rates unchanged near term ^[11].

3. Dollar and Cross-Asset

• **[NEW] Dollar at 3-month low:** The Bloomberg Dollar Spot Index fell for a third day to the lowest since May 15 ^[2], with the dollar lower against the euro and Swiss franc as traders trimmed rate-hike bets ^[12].
• **[NEW] Yen strength:** The yen was stronger as markets pared expectations for a Fed hike ^[13].
• **[NEW] Emerging FX:** Emerging currencies rose to a record high as Fed easing bets firmed ^[14].
• **[NEW] Stocks mixed:** Equities were mixed while yields rose ^[15][16].

4. Geopolitics and Oil Overlay

• **[NEW] Iran-UAE tanker:** The sharpest oil increase came after Iran seized a UAE tanker in the Strait of Hormuz, and 10-year yields followed to the day's highs ^[4].
• **[NEW] Iran's offensive shift:** Iran said it was shifting to an offensive strategy and set a deadline for the US to implement a ceasefire memo before escalating, causing a quick pop in yields ^[5].
• **[ONGOING] Oil-yield correlation:** Bond yields continued to correlate with fuel price volatility driven by war headlines ^[17][5].

5. What Would Change the Picture

• The Empire Manufacturing survey came in hotter than expected, helping push yields higher despite soft jobs and inflation ^[18].
• Weak employment and inflation appeared to be enough to keep the long end at bay initially, but the balance has shifted back toward higher rates ^[18].
• BarCap's Pradhan says a constructive long-bond view requires a fiscal surprise, slower AI-related issuance, a Treasury supply change, or sustained weak economic data ^[1].
• RRP usage was just $2.55B across six counterparties ^[19].