---
title: "July FOMC Preview: Risks of Rising U.S. Treasury Yields"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/294030715.md"
description: "The July FOMC preview shows that global market volatility has intensified due to the impact of the Middle East situation and oil price shocks. Recently, U.S. Treasury yields have risen rapidly, primarily driven by inflation expectations. This week's Federal Reserve meeting is expected to have a hawkish tone, which may elevate the upward risk for U.S. Treasury yields, with peaks likely occurring around the meeting time, and the 10-year yield may top out in the range of 4.7%-4.8%"
datetime: "2026-07-28T07:55:08.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/294030715.md)
  - [en](https://longbridge.com/en/news/294030715.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/294030715.md)
---

# July FOMC Preview: Risks of Rising U.S. Treasury Yields

**Core Viewpoint:** Last week, the situation in the Middle East and the impact of oil prices continued to disturb global markets. Although the earnings reports of U.S. tech stocks were generally not weak, they failed to alleviate concerns about the returns on AI capital expenditures. The rotation of U.S. stock sectors continued, and the performance of global stock markets remained divergent. **Recently, U.S. Treasury yields have risen rapidly,** with the 10-year Treasury yield increasing by over 20bps since July. Breaking it down, **the rise in the 2-year Treasury yield driven by inflation expectations is the dominant factor, with the influence of the inflation center and inflation risk premium being roughly equal.** This week, overseas markets will face a series of events and data releases, including the July Federal Reserve FOMC meeting, the Bank of Japan's monetary policy meeting, and the Q2 2026 U.S. GDP. **We expect that** in the current environment, Waller is more likely to remain cautious during the press conference, **and the overall tone of the meeting is expected to be hawkish, which may also bring upward risks to U.S. Treasury yields.** **In the short term, the peak of U.S. Treasury yields may occur around the Federal Reserve and Bank of Japan's monetary policy meetings this week, with relief expected after August to September.**

**Major Asset Classes:** Last week, **the situation in the Middle East and the impact of oil prices continued to disturb global markets. Meanwhile, although the earnings reports of U.S. tech stocks were generally not weak, they failed to alleviate market concerns about the returns on AI capital expenditures. The rotation of U.S. stock sectors continued, and the performance of global stock markets remained divergent.** Over the week, Brent crude oil surged nearly 10%, briefly breaking above $100 per barrel, continuing to lead global assets; the U.S. dollar and Treasury yields strengthened, leading to a divergence in global stock markets, with defensive European stocks rising while U.S. tech giants and South Korean indices fell sharply.

**Recent Rise in U.S. Treasury Yields and Outlook:** Recently, U.S. Treasury yields have risen rapidly, with the 10-year Treasury yield reaching a high of 4.71% on July 23; since July, the 10-year Treasury yield has increased by over 20bps. In terms of the yield curve spread, unlike the rise in Treasury yields in May and June, which was mainly driven by growth expectations and forward rate hike expectations, the recent rise in Treasury yields has been almost entirely dominated by the 2-year Treasury yield; further breakdown shows that the rise in the 2-year Treasury yield is mainly driven by inflation expectations, with the influence of the inflation center and inflation risk premium being roughly equal. **In the short term, U.S. Treasury yields still face upward pressure, with peaks likely occurring around the Federal Reserve and Bank of Japan's monetary policy meetings this week, and the 10-year Treasury yield may peak in the range of 4.7% to 4.8%. In the medium term, after entering August and September, it is expected that the tightening of financial conditions will begin to show negative impacts on the economy, alleviating market concerns about further tightening of Federal Reserve policies, thus U.S. Treasury yields are expected to retreat from high levels, with the overall trend in the third quarter likely showing a "rise followed by a fall."**

**Preview of July FOMC and Bank of Japan Meeting:** This week, overseas markets will face a series of events and data releases, including the July Federal Reserve FOMC meeting, the Bank of Japan BOJ monetary policy meeting, as well as the Q2 2026 U.S. GDP and June PCE data. At 2:00 AM on Thursday, the Federal Reserve will announce its July monetary policy decision. As of the latest, federal funds futures traders expect a 38% probability of a rate hike in July, while expecting a cumulative rate hike of 1.76 times/44bps by December 2026 This reflects that **the market is betting on a recent rise in oil prices and Trump's "renewal" of tariffs, which will force the Federal Reserve to adopt a hawkish stance at the July FOMC meeting**. We expect that **in the current environment, Waller is more likely to emphasize the upside risks of inflation in the meeting statement and press conference, with an overall hawkish tone, which will also bring further upside risks to U.S. Treasury yields**.

This Friday, the Bank of Japan will announce its monetary policy decision. Current traders expect the Bank of Japan to remain on hold. **In addition to inflation concerns similar to those of the Federal Reserve, the Bank of Japan's hawkish motivation may stem from the yen exchange rate**. Recently, the yen approached 164 against the dollar, and the current net short position in the yen has become as crowded as it was in July 2024. Once the Bank of Japan releases a tighter signal, a stronger yen may prompt some carry trades to unwind. In terms of scale, the current shock is expected to be weaker than in July 2024, but it may still cause liquidity fluctuations in the short term and amplify adjustments in the U.S. Treasury market.

**Risk Warning:** Trump's policies exceed expectations; excessive rate cuts by the Federal Reserve trigger a rebound in inflation or even loss of control; the Federal Reserve maintains high interest rates for too long, leading to a liquidity crisis in the financial system.

**Main Text Below**

**1\. Major Asset Classes**

**1.1. Review of Last Week**

Last week (from July 20 to July 26), the situation in the Middle East and oil price shocks continued to disrupt global markets. Meanwhile, although the earnings reports of U.S. tech stocks were generally not weak, they failed to alleviate market concerns about the returns on AI capital expenditures, leading to continued sector rotation in U.S. stocks and further divergence in global stock market trends. At the beginning of the week, U.S.-Iran relations tightened, and shipping risks in the Red Sea and the Strait of Hormuz increased, prompting the market to first trade on energy supply and inflation upside risks, with gold continuing its rebound. Among them, the semiconductor sector had previously rebounded due to the delivery of new-generation products by NVIDIA and the significant decline in U.S. stocks, but the rebound lacked sustainability. After mid-week, tech giants like Google, Tesla, and Intel announced their earnings, and under the impact of geopolitical disturbances and rising U.S. Treasury yields, the market reacted cautiously overall. Notably, Google's performance significantly exceeded expectations, with high growth in its cloud business confirming strong AI demand from enterprises, but the market remained vigilant about capital expenditure returns and cash flow, putting pressure on its stock price; Intel's earnings, released on Thursday, also exceeded expectations across the board but failed to significantly boost sentiment. In the bond market, the inflation risks brought about by rising oil prices and the cautious sentiment ahead of the July FOMC meeting drove U.S. Treasury yields higher, with the 10-year U.S. Treasury yield breaking above 4.7%. For the week, Brent crude oil surged nearly 10%, briefly surpassing $100 per barrel, continuing to lead global assets; the dollar and U.S. Treasury yields strengthened, global stock markets diverged, with defensive European stocks closing higher, while U.S. tech giants and South Korean indices fell sharply.

![Image](https://imageproxy.pbkrs.com/https://inews.gtimg.com/news_bt/OMwVpgCo18ZiJp7_zZ5MOfCnQFoTW7N96K7J9Mv5IhrWQAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) **1.2. Recent Reasons for the Rise in U.S. Treasury Yields and Outlook**

In the past week, U.S. Treasury yields have risen rapidly, with the 10-year Treasury yield increasing from 4.55% on July 17 to a high of 4.71% on July 23, and the 2-year Treasury yield rising from 4.13% on July 17 to a high of 4.37% on July 23. Since July, the 10-year Treasury yield has risen over 20bps. In terms of the breakdown of the yield curve, unlike the rise in Treasury yields in May and June, which was mainly driven by growth expectations and expectations of future rate hikes, the recent increase in Treasury yields has been almost entirely dominated by the 2-year Treasury yield: from June 30 to July 24, the 10-year Treasury yield increased by 31bps to 4.68%, while the 2-year Treasury yield rose by 24bps to 4.34%, contributing 7bps to the 10Y-2Y yield spread.

![Image](https://imageproxy.pbkrs.com/https://inews.gtimg.com/news_bt/OIZHLq0XKRoWo220XN7K2obFS-fDvl_XjV15OgVo-0vCkAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Further breaking down the 2-year Treasury yield, the rise since July has been primarily driven by inflation expectations. From the perspective of BEI inflation expectations and TIPS real yields, the 2-year inflation expectation contributed 25bps; from the perspective of risk-neutral rate R and term premium TP, the 2-year risk-neutral rate increased by 11bps to 4.13%, while the term premium TP contributed 8bps. Therefore, the market is responding to both the upward shift in the inflation center caused by oil prices and the inflation uncertainty brought about by the U.S.-Iran conflict, indicating a higher inflation risk premium.

![Image](https://imageproxy.pbkrs.com/https://inews.gtimg.com/news_bt/OmyMuJ4raIWt8v9KbsMXE8ebI2UwJ6mSFN_sPc5DwvkSwAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Nevertheless, although the renewed U.S.-Iran conflict has caused oil prices to rise from $70 to $100 recently, **the increase in implied inflation expectations in U.S. Treasuries has been more restrained compared to March and April**. This somewhat reflects that after experiencing the "TACO" scenario of reciprocal tariffs in March and April and last year, the market is more convinced that Trump will act quickly to TACO against the backdrop of further oil inventory shortages and the approaching midterm elections. In the medium to long term, we expect the U.S.-Iran conflict to gradually take on a Russo-Ukrainian character, which means that, on one hand, the battlefield itself will continue to be drawn out, and the passage of oil tankers through the Strait may maintain a sporadically open state; on the other hand, as Saudi Arabia, the UAE, and Iraq will bypass the Strait of Hormuz through new pipelines, the impact of the U.S.-Iran conflict on the market will gradually weaken.

Regarding U.S. Treasury yields, **there is still upward pressure in the short term, with peaks likely occurring around this week's Federal Reserve and Bank of Japan meetings, and the 10-year Treasury yield may top out in the range of 4.7% to 4.8%** From a mid-term perspective, after entering August and September, the negative impact of tightening financial conditions on the economy is expected to begin to manifest, and concerns about the Federal Reserve further tightening policies will ease, which may lead to a decline in U.S. Treasury yields from high levels, with the overall trend in the third quarter likely to show a "rise first, then fall" pattern.

**2\. Overseas Economy**

**2.1. Last Week Review**

The U.S. economic data released last week remained robust overall, with the Bloomberg Economic Surprise Index continuing to rise. Among them, the number of initial jobless claims fell to a multi-year low, while June new home sales growth fell short of expectations. In terms of economic indicators, the U.S. S&P Services PMI for July recorded 53.6, expected 51.5, previous value 51.2, the highest since November 2025; the Manufacturing PMI recorded 53.8, expected 54.4, previous value 53.9. In the Eurozone, the Bloomberg Eurozone Economic Surprise Index remained high.

![Image](https://imageproxy.pbkrs.com/https://inews.gtimg.com/news_bt/Or9rujovxvUIPh9M_QDz6EimKzhMVz42X5z1PpAuCkFfQAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

**2.2. This Week Focus: July FOMC, BOJ Meeting, and U.S. GDP**

This week, the overseas market will welcome a series of events and data releases, including the July Federal Reserve FOMC meeting, the Bank of Japan (BOJ) monetary policy meeting, as well as the Q2 2026 U.S. GDP and June PCE data. Overall, we expect U.S. Treasury yields to face upward risks.

At 2:00 AM on Thursday, the Federal Reserve will announce its July monetary policy decision. According to a survey conducted by Bloomberg from July 17 to 22 among 80 analysts, analysts unanimously expect the Federal Reserve to remain on hold until June next year; at the same time, analysts expect the Federal Reserve to cut interest rates in Q3 2027. Meanwhile, traders have very aggressive expectations for Federal Reserve rate hikes. As of the latest, federal funds futures traders expect a 38% probability of a rate hike in July, while expecting a cumulative increase of 1.76 times/44bps by December 2026, with at least 2 rate hikes by June next year. Since traders' expectations are more linearly extrapolated based on recent data and market fluctuations, this expectation reflects that the market is betting on a renewed rise in oil prices and Trump's "renewal" of tariffs, which will force the Federal Reserve to adopt a hawkish stance at the July FOMC to demonstrate its determination to defend its inflation target. Therefore, **we expect that although Waller has abandoned forward guidance, in the current environment, he is more likely to emphasize the upward risks of inflation in the meeting statement and press conference, with an overall hawkish tone for the meeting, which will also bring further upward risks to U.S. Treasury yields**.

![Image](https://imageproxy.pbkrs.com/https://inews.gtimg.com/news_bt/OcofkgfwETyPH2WydRRKbBKOr0J9X8Akb9FunoVSlZyFQAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) On Friday, the Bank of Japan will announce its interest rate decision for July. Current traders expect the Bank of Japan to remain on hold, with a significant probability of raising rates at the October or December meetings. In addition to inflation concerns similar to those of the Federal Reserve, the Bank of Japan's hawkish motivation may stem from the yen's exchange rate. Recently, the yen's exchange rate against the dollar approached 164, and the current net short position in the yen is as crowded as it was in July 2024. Once the Bank of Japan releases a more hawkish signal, a stronger yen may prompt some carry trades to exit. In terms of scale, the current shock is expected to be weaker than in July 2024, but it may still cause liquidity fluctuations in the short term and amplify adjustments in the U.S. Treasury market.

![Image](https://imageproxy.pbkrs.com/https://inews.gtimg.com/news_bt/OW3ppW-bPJ3w_FDGuNxpe2Jw50Ykk-DSDSysL5WMhPQRMAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

In addition, the U.S. GDP for Q2 2026 will be announced this Thursday. The July Bloomberg economic survey indicates that analysts expect the annualized quarter-on-quarter growth rate of U.S. GDP for Q2 2026 to be 2.2%; Bloomberg's real-time updates on individual economic data forecasts show that analysts predict the annualized quarter-on-quarter growth rate of U.S. GDP for Q2 2026 to be 2.1%, which are quite close. In terms of high-frequency forecasts, the Federal Reserve's GDPNow model predicts the growth rate of U.S. GDP for Q2 2026 to be 1.7%, significantly lower than market expectations, with foreign trade remaining a major drag. For Q2 2026, there are three points of focus: ① whether the growth rate of private sector consumption in the U.S. continues to slow down or improves; ② whether the pull effect of AI-related investments on GDP accelerates or marginally declines; ③ overall structure, focusing on whether the "core GDP," which excludes inventory fluctuations, net exports, and government sectors, can maintain strength.

**3\. Risk Warning**

Developments in the Middle East exceed expectations; Trump's policies exceed expectations; excessive rate cuts by the Federal Reserve trigger inflation rebound or even loss of control; the Federal Reserve maintains high interest rates for too long, leading to a liquidity crisis in the financial system

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