Notes for Wed, Jul 29, 2026

Front end prices a hike plus a campaign into today's decision; we hold the fade, with the presser and Friday's turn as the falsifiers.

Into the decision

The FOMC decides at 2 PM ET and the front end walks in priced for a hawkish path, not a pause. The 2y sat at 4.31% Monday^[1], roughly 68bp above an EFFR that fixed 3.63%^[2], with the target range still 3.50-3.75%^[3]. That gap discounts today's hike plus a campaign behind it, so we hold the fade: a delivered hike is largely in the price, and the risk-reward is to fade the knee-jerk cheapening, not chase it. We keep the premium on rather than add, the reaction-function risk is real and cuts both ways.

The live falsifier is the presser, not the statement. We're offside if Warsh confirms a higher reaction function; a committee that treats sticky inflation as the binding constraint bear-flattens the whole curve and the fade is wrong. We fade the hike, not a regime change. Out if the 2y breaks and holds above 4.37%, the 7/23 high^[4].

Break test: ceasefire fraying, oil still lower

One break test was on the books, re-baseline if the ceasefire fails and Brent retakes $100, re-arming the inflation tail the long end had discounted. It did not trip. The ceasefire is fraying at the edges: the Houthis fired on a Saudi tanker and Aramco shut its 400kbd Jazan refinery after a strike^[5], per ZeroHedge relaying regional reports. But renewed deal optimism and an Oman-brokered Hormuz proposal pushed oil lower, not higher^[6]. No Brent above $100, no failed ceasefire, so the long end can keep pricing a contained energy tail.

That leaves the two-week long-end selloff as a supply-and-term-premium story, not an oil story. The 30y sat at 5.12% Monday^[8], off the 5.17% high on 7/23^[9] but up from 5.08% mid-month^[10], issuance and duration risk, not the leading edge of an inflation scare. Even if the front reprices hawkish today, the long-end bid has a structural leg that survives the decision^[7]; Gromen frames it as collateral demand and forced-liquidation dynamics that persist regardless of where the front end fixes.

Funding into the turn

Month-end runs Friday and the plumbing is firm but not stressed. GCF UST repo printed 3.69% Tuesday^[11], a few bp above an IORB pinned at 3.65%^[12], while SOFR fixed 3.64% Monday^[13], a hair under IORB and not gapping. The turn premium is building in GCF, not leaking into the benchmark yet.

RRP take-up is effectively gone, $1.1bn Tuesday^[14], so there's no cash cushion left to absorb a turn squeeze; it clears through the market now. Reserves fell to $3.06tn on 7/22^[15], down $80.6bn on the week^[16], as the TGA rebuilt $39.4bn^[17] to $835bn^[18]. Thinner cushion, firmer repo, orderly for now. We re-baseline the turn leg if Friday's GCF gaps well beyond 3.80%; short of that, the fade and the premium both stay on.

Sources read

4 sources read

• Commentary items: 4

Citations

1. [1]The 2y sat at 4.31% Monday (4.31) — FRED DGS2 · Jul 27, 2026
2. [2]an EFFR that fixed 3.63% (3.63000) — NY Fed EFFR · Jul 27, 2026
3. [3]the target range still 3.50-3.75% (3.50 lower / 3.75 upper) — FRED DFEDTARU · Jul 28, 2026
4. [4]above 4.37%, the 7/23 high (4.37) — FRED DGS2 · Jul 23, 2026
5. [5]Aramco shut its 400kbd Jazan refinery after a strike (Saudi Aramco has shut down its Jazan oil refinery after a Houthi missile and drone attack) — Commentary · zerohedge.com
6. [6]renewed deal optimism and an Oman-brokered Hormuz proposal pushed oil lower, not higher (Return to deal optimism pushed oil prices down further; Oman presented a Gulf-backed Hormuz management plan (paraphrase).) — Commentary · zerohedge.com
7. [7]the long-end bid has a structural leg that survives the decision (USD scarcity and forced-liquidation dynamics keep the long-end bid even if the front end reprices hawkish (paraphrase).) — Commentary · twitter.com
8. [8]The 30y sat at 5.12% Monday (5.12) — FRED DGS30 · Jul 27, 2026
9. [9]off the 5.17% high on 7/23 (5.17) — FRED DGS30 · Jul 23, 2026
10. [10]up from 5.08% mid-month (5.08) — FRED DGS30 · Jul 15, 2026
11. [11]GCF UST repo printed 3.69% Tuesday (UST 3.69400) — DTCC GCF repo · Jul 28, 2026
12. [12]an IORB pinned at 3.65% (3.65000) — FRED IORB · Jul 29, 2026
13. [13]SOFR fixed 3.64% Monday (3.64000) — NY Fed SOFR · Jul 27, 2026
14. [14]$1.1bn Tuesday (1.12600) — FRED RRPONTSYD · Jul 28, 2026
15. [15]Reserves fell to $3.06tn on 7/22 (3062149M) — FRED WRESBAL · Jul 22, 2026
16. [16]down $80.6bn on the week (-80,572M w/w) — FRED WRESBAL · Jul 22, 2026
17. [17]the TGA rebuilt $39.4bn (+39,441M w/w) — Treasury General Account · Jul 22, 2026
18. [18]to $835bn (835417M) — Treasury General Account · Jul 22, 2026

Generated by Short Rates Desk. Informational only. Not investment advice.