Bond Yields Are Screaming. Markets Still Aren’t Listening.

Bond Yields Are Screaming. Equity Markets Are Still Asleep.

Markets blinked on Tuesday. After a tepid CPI print and a round of bank earnings, the surface-level reaction was mixed — equities opened strong, then gave it all back. But beneath the noise, something more telling happened: U.S. bond yields ripped to one-month highs, and the MSCI World Index failed to hold a record level.

The narrative being sold to investors is tidy: “Inflation was in line, earnings are okay, the Fed will cut in September.” But the bond market isn’t buying it — and neither should you.

Inflation Isn't “Hot” — It’s Structural

June’s +0.3% MoM CPI came in as expected, but that’s a hollow victory. This was the biggest monthly gain since January, and it was driven not by energy, but by sticky, domestic goods inflation: coffee, electronics, furniture — items deeply embedded in the U.S. consumption basket.

What changed? Tariffs.

Trump’s latest salvo — 30% levies on EU and Mexican imports by August 1 — is already bleeding into the data. Economists are pretending this is temporary. It’s not. This is cost-push inflation dressed up as “manageable.” The Fed may still cut, but with the long-end of the curve lifting sharply, markets are now waking up to a stagflationary drift.

Treasuries Are the Tell

• 10-year yield: 4.48% (+5.4bps)

• 30-year yield: 5.01% (+4.1bps)

• 2-year yield: 3.96% (+5.9bps)

That’s a bear steepener — the market’s way of saying inflation is sticky and fiscal credibility is fading. When the long bond breaches 5% in the absence of a Fed hike, it's not a bet on growth — it's a vote of no confidence in U.S. fiscal policy.

This is what it looks like when the bond vigilantes return.

Equities Are Still Drunk on Liquidity

Despite yields surging, the Nasdaq rose 0.68%, buoyed by a 4% rally in Nvidia after it resumed H20 chip sales to China. The S&P eked out a 0.04% gain. But the Dow dropped over 240 points, and the global MSCI index gave up early gains to close lower.

In other words: mega-cap tech levitation continues to mask growing cracks beneath the surface. Cyclicals, banks, and rate-sensitive names are rolling over. This is a market where breadth is narrowing, not expanding — a classic late-cycle signal.

Even earnings aren’t saving the narrative:

• JPMorgan beat but dropped 0.5%.

• Citigroup rallied 2.7% — a rare bright spot.

• Wells Fargo tumbled over 5% after cutting net interest income guidance — even with a profit beat.

S&P 500 earnings growth expectations have been slashed from 10.2% in April to 5.8% today. That doesn’t happen in a “Goldilocks” economy.

Trade War Escalation: The Hidden Macro Risk

Trump’s tariff threats are no longer rhetorical. The proposed 30% duties are set to take effect in just over two weeks. And while he claims he's “open to talks,” markets are now pricing in real economic damage.

This isn't just about inflation. It's about supply chain re-fragmentation, corporate margin pressure, and capital expenditure delays. Japan is scrambling to get high-level meetings on the calendar this Friday. Meanwhile, domestic polls show Japan’s ruling party at risk of losing its majority to anti-austerity opposition — adding fuel to the fiscal fire globally.

Currency and Commodities: The Macro Confirmations

• DXY Dollar Index: 98.57 (+0.46%)

• USD/JPY: 148.87 — a 15-week high

• Brent crude: $68.97/bbl (–0.35%)

• Gold: $3,340/oz (–0.1%)

The dollar’s strength — particularly against the yen and euro — reflects a regime shift. The U.S. fiscal path is deteriorating, but global alternatives are even worse. That divergence is pushing capital back to dollar assets, even as U.S. macro policy becomes more inflationary.

Meanwhile, gold drifting lower despite geopolitical risk and real yield volatility suggests that real rates are in control — and for now, gold is losing that battle.

Big Picture: This Isn’t a Soft Landing — It’s a Policy Trap

You don’t get rising long-end yields, widening trade deficits, sticky goods inflation, and declining earnings growth in a soft landing.

You get it in a fiscal-monetary collision course — where tariffs, populism, and politically weaponized monetary policy all hit at once.

Investors still clinging to the “rate cuts will save us” narrative are missing the bigger story: rate cuts may arrive, but they won’t be stimulative — they’ll be reactive. And if they arrive while inflation is sticky, the real cost of capital stays elevated.

Where This Goes — And How to Play It

1. Steepening curve = pain for risk. Bond market steepening is never good for long-duration assets. Short growth, especially speculative tech that relies on low funding costs.

2. Long dollar, short FX pairs with fiscal stress. The USD remains the cleanest dirty shirt in a world of devaluation and rate suppression.

3. Position for compression in earnings. Favor quality balance sheets, cost-passing business models, and low-beta defensive sectors.

4. Gold will shine — but not yet. With real yields surging, gold’s time will come on the next Fed pivot, not before. Be patient.

What Surmount Is Building

If you’re looking for tools to navigate this regime shift, one way to play it is with automated strategies that don’t depend on central bank hopium or backward-looking models.

Surmount, an independent platform focused on democratizing automated investing is building strategies that adapt to macro cycles, liquidity shifts, and volatility regimes in real time. And soon, they’re rolling out crypto integration — allowing structural exposure to digital assets without needing to time entries manually.

Stay tuned — this isn’t the market you index into.