The Federal Reserve didn't raise interest rates, yet the 30-year US Treasury yield soared to 5.27% — who's making moves on behalf of Waller?
On July 29, the Federal Reserve announced: rates unchanged at 3.50% to 3.75%, holding steady for the seventh consecutive month.
Once the news broke, the 30-year US Treasury yield jumped 14 basis points in a single day, hitting 5.23%, a new high since 2007. It rose another 6 basis points on Friday, reaching 5.27%.
The Fed didn’t hike rates, but the bond market raised its own interest.
This isn’t due to a single cause. Five simultaneous pressures pushed long-term rates to a 19-year ceiling.
🧵 First pressure: Inflation — oil prices surged 20% in one month, domestic demand hits a two-year high
June’s PCE month-over-month just recorded its first negative reading since 2020. Inflation data is cooling, but the bond market isn’t buying it.
Why?
Oil prices rose about 20% in one month. Domestic demand in Q2 hit a two-year high — excluding net exports, inventories, and government spending, domestic private final sales grew 3.9%, more than double Q1. Consumption accounts for two-thirds of the US economy, jumping directly from 0.5% to 3.2%.
One data point cools, three are heating up. The bond market chooses to trust oil prices and domestic demand.
The market is already pricing in a rate hike in September. Interest rate swaps show about a 60% chance of a hike after the decision announcement.
🧵 Second pressure: Fiscal — $39.5 trillion debt, $1.04 trillion interest expense
US federal debt is approaching $39.5 trillion.
The fiscal deficit for FY2026 is expected to reach $1.9 trillion, 5.8% of GDP. To cover the gap, the Treasury continues issuing long-term debt — Q2 net borrowing was raised to $189 billion.
Net interest expenses are expected to be about $1.04 trillion.
Borrowing more and paying more interest. The supply side keeps flooding the market with long bonds; can yields not rise?
🧵 Third pressure: The Fed — 9 to 3, the biggest split in a decade
The June meeting was unanimous. In July, it shifted to 9 in favor, 3 opposed.
All three regional Fed presidents advocated a 25 basis point hike. This is the first time since 2016 that the Fed has had three dissenting votes in the same direction.
Waller said, "This is just the beginning of the story, not the end." The market hears: even Fed insiders think rates are too low.
The Fed doesn’t act, the bond market acts for it. Waller himself admits the market has done a lot in the past 42 days.
🧵 Fourth pressure: Supply and demand — buyers are running, sellers are piling up
Japan is the largest foreign holder of US Treasuries. To defend the yen, Japan is selling US debt to raise dollars.
Japan’s 10-year government bond yield is at multi-year highs; life insurers and pension funds holding low-yield US debt no longer make sense.
The biggest buyers are selling, the Treasury is issuing desperately. Supply exceeds demand, prices fall, yields rise — basic economics.
🧵 Fifth pressure: AI — $489 billion in bonds, draining market liquidity
Goldman Sachs estimates that by mid-2026, AI-related corporate bond issuance will reach about $489 billion.
Alphabet’s $205 billion capital expenditure plan, tech giants’ over $600 billion capex — where does this money come from? Bond issuance.
BlackRock data center bond yields reach 7.534%, about 287.5 basis points above 10-year Treasuries. The AI junk bond basket’s average yield is 7.45%.
AI is driving economic growth while competing with the US government for funds. The stronger the capital demand, the higher the cost of money.
💡 Among these five factors, at least four are medium-term, not short-term fluctuations.
Will oil prices fall? The Middle East is still unsettled.
Can the fiscal deficit narrow? The $39.5 trillion debt remains.
Can the Fed’s split be resolved? Three dissenting votes are not just for show.
Will AI investment stop? Giants’ capex plans extend into next year.
5.27% is unlikely a "one-time spike." It’s more likely the start of a new normal.
🔗 What does this mean for the crypto market?
The liquidity environment is shifting from "easy expectations" to "tight reality."
30-year US Treasury yields above 5% mean you can earn over 5% annualized return with no risk. Bitcoin hovers near $62,500; spot Bitcoin ETFs recorded about $265 million net outflows on Friday. Spot trading volume hit a new low since 2019.
Institutional funds are withdrawing from crypto, moving to risk-free 5%+ yields. This isn’t panic; it’s a rational choice.
The main theme for the second half of the year is finding structural opportunities against the headwind.
In 2020, when the 30-year Treasury yield was only 0.7%, Bitcoin rose from $10,000 to $60,000.
Now at 5.27%, do you expect Bitcoin to hit $100,000?
Not impossible, but the path will be much tougher than you think.
The Fed didn’t hike rates, but the market did it for them.
Inflation data is cooling, but oil prices and domestic demand won’t let it fall.
AI is creating wealth but also draining your liquidity.
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