Executive Summary

Strait of Hormuz remains the key geopolitical risk: the US–Iran nuclear MOU has collapsed, oil flows through the Strait have dropped to 20–40% of pre-war levels, and OECD strategic reserves have fallen 180 million barrels to a thin 23 days of demand, keeping Brent structurally supported at $80-85/bbl.

US rates and Treasury policy are being actively reshaped: Chair Warsh is curbing forward guidance toward a reaction function, Secretary Bessent has doubled long-end buybacks to at least $4bn per operation, and a more price-sensitive buyer base (73% private) is adding roughly 90bp of term premium to the 30-year.

July FOMC minutes highlight a divided, data-dependent Fed: “Most” participants supported keeping the policy rate at 3.50–3.75%, while “several” favored a 25bp hike. Hammack, Logan and Kashkari dissented in favor of a hike. Staffs also flagged downside risks from a potential AI-driven repricing and associated wealth effects. Despite the hawkish split, markets continue to price a high probability (~70%) of no further hikes in Sept 2026.

Credit

US IG: 79bp (+2bp MTD); EUR IG 77bp (-3bp MTD);

Rangebound Spreads: Despite heavy August primary supply, ranking as the 2nd largest full-month August since 2015, index spreads remain largely rangebound given robust demand supported by attractive all-in-yield.

Private Credit Scrutiny & Liquidity Stabilization: Global news and sentiment trends show that intense market scrutiny has eased from its early 2026 peak as negative catalysts slow down. BDC redemption pressures marginally edged lower, subscription inflows remain healthy, helping to offset outflows.

Rates & Central Bank Policies

Warsh is redefining Fed communication: With the Fed increasingly reluctant to anchor markets to a predetermined rate path, Warsh is curbing forward guidance, shortening FOMC statements and emphasizing the policy reaction function over explicit signals on future rates. He has also floated reducing FOMC meetings from eight to six per year, allowing more economic data to accumulate between decisions and potentially reducing the market’s reliance on every meeting as a policy signal. The shift raises front-end rate uncertainty, with investors now placing greater weight on incoming inflation and labor data

Bessent is running activist debt management: With long-end UST yields reaching multi-year highs amid heavy fiscal supply and concerns over demand, Treasury is doubling 10–30Y UST buybacks to at least $4bn per operation, up from $2bn. While Treasury frames the program as liquidity support for less-liquid Treasury securities, the effect is also to remove duration from the long end and shift marginal funding toward T-bills, making the policy resemble a debt-management strategy rather than conventional QE.

Watch List & House View

Watchlist: (1) Jackson Hole and Warsh's keynote (late August); (2) July PCE (Aug 26, 8:30 ET); (3) the September FOMC (Sep 15–16).

House View:

Curve: bull-steepening bias with the UST 10Y near 4.70-4.75%, favoring positions in the 5-7Y belly.

Prefer USD IG over EUR IG as the declining USD/EUR hedging cost (~1.30%) remains below the ~1.40% YTW differential between USD and EUR BBBs at 5–7Y, providing ~10bp of post-hedge pickup.

Sectors: (1) OW Energy (Brent $95/bbl for 2026), focusing on defensive volumetric stability in Midstream and Oilfield Services; (2) Selectively OW BDCs with top manager platforms and low software exposure.