Taking stock of Treasuries

While the stock market has continued to search for direction in July, the Treasury market has made an interesting move. The benchmark 10-year Treasury yield kicked off this week by pushing above 4.6%, its highest level since May, when it hit a 16-month closing high of 4.66%:

Because bond prices move inversely to yields, the following chart of the September 10-year T-note futures contract (ZNU6) shows the market poised to challenge its May lows, just as the 10-year yield climbs closer to its May highs:

As Morgan Stanley Wealth Management strategists noted on Monday, stronger-than-expected  economic growth, concerns about sticky inflation, and perceptions of a hawkish Fed have pushed Treasury yields higher—resulting in a potential opportunity to exploit oversold Treasury prices.

Their outlook for lower long-term yields—and thus, higher Treasury prices—over the next six to 12 months, is based on three primary arguments: economic growth will slow (as fiscal-policy boosts and credit-fueled consumer spending fade), inflation data will gradually cool, and a patient Fed that will avoid rate hikes, and eventually (in 2027) pivot to rate cuts.¹

It should be noted that this “patient Fed” thesis appears to run counter to revelations that a majority of FOMC board members see at least one rate hike by the end of the year, as well as the prevailing market-based expectations for a 2026 hike reflected in fed funds futures.² However, in describing this outlook as “too hawkish,” the Morgan Stanley Wealth Management strategists point out that, beyond the likelihood of cooler inflations (assuming there is no return to prolonged $90-plus oil prices), Fed Chair Warsh’s plan for policy task forces imply markets can expect to digest a “long and deliberate trickle of incremental analysis.” And that suggests a Fed that will “move gradually, in a data-driven manner aimed at muting bond volatility while re-establishing an easing bias.”

In a nutshell, 10-year Treasury yields may be approaching an important resistance level, and 10-year T-note prices may be approaching an important support level.

Market Mover Update: August WTI crude oil futures (CLQ6) jumped more 9% on Monday—the market’s biggest one-day rally since early April—as hostilities escalated in Iran.

Today’s numbers include (all times ET): CPI (8:30 a.m.), Fed Chairman Kevin Warsh speech (10 a.m.).

Today’s earnings include: Bank of America Corp (BAC), Citigroup (C), Fastenal (FAST), Goldman Sachs (GS), JPMorgan Chase (JPM), Kinder Morgan (KMI), Wells Fargo (WFC).

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¹ MorganStanley.com. The GIC Weekly: Another Bite at the Duration Apple. 7/13/26.
² CMEGroup.com. FedWatch Tool. 7/13/26.