〔Overnight Brief〕Iran Air Strikes Reflate the Curve: 10Y Touches 4.8%, 30Y 5.236%, Mortgage Rates Highest Since June 2025, Hike Odds 68-77% — 'Inflation-First' Fed Sets the September Tone

0. Overnight Arc

The hawkish Warsh Jackson Hole reset met its first stress test and held. New US air strikes on Iran pushed oil to its highest level since late July and bond yields to close at the highest since January 2025, reversing the morning post-data rally ^[1][2]. The Treasury curve followed: 10Y touched 4.8% intraday (highest since 2025), 30Y gave back an intraday 5bp rise to 5.236%, and 2Y hit 4.37% (highest since Feb 2025) ^[3][4][5]. Bond selling is no longer just an oil story — intraday correlation with crude has thinned, and issuance, Fed policy and sticky inflation are now doing their own work ^[6].

1. Policy Narrative

• **[ESCALATED] Hawkish — Fed Chair Warsh (Jackson Hole, Aug 28):** characterized the labor market as 'fairly stable' and 'consistent with full employment' while reaffirming the inflation mandate; the WGC weekly monitor flags the Jackson Hole message as the week's hawkish jolt ^[7][8].
• **[NEW] Fed Governor Barr (Sept 1, Second-Chance Lending Forum, Washington):** said it is time to hike if inflation does not slow soon, in remarks on the economic outlook and financial inclusion ^{[9][10][11][12]}.
• **[NEW] (third-party framing) Evercore ISI vice chair Krishna Guha:** 'This is an inflation first Fed right now,' with inflation, oil and yields outweighing jobs in the September decision ^[13].
• **[ONGOING] FT — credibility overhang:** Warsh has 'cleared up his own mess' but US credibility remains stretched, with many of the chair's policy problems stemming from the administration ^[14].

2. Key Data and Market Read

• **[NEW] ISM Manufacturing Prices Paid (Aug):** 71.1 vs 70.5 expected, 71.1 prior — sticky on the input side ^[15]. Headline Manufacturing PMI carries a sourcing conflict: one wire prints 54.6 vs 55.2 forecast / 55.6 prior ^[1], another prints 53.9 vs 53.2 expected ^[16] — quote the band, not a point, and flag both as single-wire.
• **[NEW] July JOLTS:** 7.27M openings, above the sharply downward-revised June 7.182M (cut from 7.359M, the largest negative revision since 2025), but below the 7.31M consensus; layoffs fell to their lowest since January ^[7].
• **[NEW] Fed funds plumbing:** effective fed funds 3.63% (unchanged), SOFR 3.68% (up from 3.65% prior day), and RRP usage collapsed to $725M with 2 counterparties from $6.726B ^[17][18].
• **[NEW] Front-end pricing:** 2Y at 4.37% (highest since Feb 2025), 30Y at 5.236% after giving back intraday gains ^[3][4]. 10Y intraday touched 4.8% — highest since 2025 ^[5].
• **[NEW] Mortgage market:** top-tier 30Y fixed 6.89%, highest since June 2025 but still below that month's 6.97% peak ^[2].

3. Geopolitical and Energy Channel

• **[ESCALATED] Iran:** new US air strikes on Iran drove oil to its highest level since late July and 'matched' the highest closing bond yields since January 2025, reversing the morning post-data rally ^[1]. Mortgage News Daily frames the entire week as 'more war, more selling' ^[1][2].
• **[NEW] Hedging footprint:** a $6.5M position was opened Monday targeting 30Y at 5.7% by end-November; SOFR options cover 10Y near 4.85% and 5Y near 4.6% over coming weeks ^[5]. Nedgroup Investments fixed-income head David Roberts: 'hard to see the turning point for bonds' without a long-term Iran solution ^[5].

4. Credit and Supply

• **[ONGOING] Investment-grade dislocation:** ~$1T in non-financial IG corporate bonds (US ~$580B, Europe ~$400B) trade at spreads meaningfully detached from ratings, per Bloomberg analysis, even as headline IG spreads sit 78bps (US) and 79bps (Europe) near multi-year lows ^[19]. Euro IG widened <1bp and US IG 0.3bp on the week's sovereign selloff ^[19]. Robeco global IG portfolio manager Matthew Jackson calls the aggregate spread 'unspectacular' but sees significant name-level opportunity ^[19].
• **[NEW] Bill supply:** 6-week bill awarded 3.735% at 2.85x bid-to-cover; 52-week 3.980% at 3.61x ^[20].

5. What Decides Next

• **August NFP (Friday):** consensus +55k vs July's net -23k — the test of whether the Warsh 'fairly stable' framing survives ^[7].
• **Hike-odds band:** 68% (Tech Times wire) and 77% (bloomingbit) live simultaneously; treat as a range, not a point ^[21][22].
• **Source-quality control:** the 10Y 4.8% intraday and the conflicting ISM Manufacturing PMI are single-wire prints ^[1][16][5]; the 30Y 5.236% post and the SOFR/RRP plumbing come from Chinese wires with timestamp precision and are internally consistent ^[17][18][3].