Newsletter · · Ashutosh Agarwal

Long End Rallies With Oil as the Supply Driven Steepener Waits - The Long End & Fiscal Supply - Week of June 23-30, 2026

Oil round-tripped the war premium and break-evens crashed, rallying the long end into a bear flattener now while the supply-driven steepener stays a months-not-weeks story. Our synthesis for the week of June 23-30, 2026.

The Long End & Fiscal Supply

Week of June 23-30, 2026: Long End Rallies With Oil as the Supply Driven Steepener Waits

The Long End & Fiscal Supply

Week of June 23–30, 2026

This was the week the long end refused to play its assigned role. Oil round-tripped almost the entire war premium, break-evens didn't just fall, they crashed, and the back end of every G10 curve rallied even as the front end braced for a Warsh hike. The fiscal-doom crowd is still right about the destination. The tape just spent the week arguing about the timing.

TL;DR

  • The week's long-end move was a rally, not a rout. 10s and 30s fell with oil while 2s pushed higher on Fed hike pricing, a textbook bear flattener now, with the supply-driven steepener still a "months, not weeks" story.
  • The fiscal arithmetic keeps getting uglier under the hood, May interest expense hit a record $132.6B, FY-to-date interest is $866.8B (+11.7% y/y), and tariff receipts just flipped negative, but nobody on the tape thinks it breaks this quarter.
  • Gold's ~25% drawdown and a >1-year-high dollar are being read as a dollar-funding / reserve-liquidation signal, not a referendum on US solvency.

A note on sourcing: every voice this week is a strategist or pundit, no corporate operator or insider commentary surfaced in the window. Labelled accordingly throughout.

What's new

1. Two trades, two timings, Bob Sheehan (Lighthouse Macro, pundit/strategist), Forward Guidance, Jun 29, "How To Trade The New Warsh Fed." Sheehan frames the curve as "two trades now": a near-term bear flattener (short end higher on inflation prints and a hawkish-leaning Warsh) and a later steepener where "the long end really answers to supply and the short end is… always going to answer to the Fed." The kicker: "mostly foreign buyers are dropping off compared to what they have been." Why it matters: the cleanest articulation of why the long-end bear case is a Q3–Q4 story, not a this-week story, "you got this bear flattener to start and then the steepener kind of comes in waves afterwards."

2. The long-end move was monetary, not fiscal, "Jay" (rates strategist) & Ben Ramsey (Head of EM Sovereign Credit Strategy), pundit/strategist, Making Sense, Jun 29, "2026 Mid-Year Outlook." The institutional counter: H1's 20–50bp back-up in long yields was "exclusively about the shifts in monetary policy and not really about fiscal or about term premium," because "term premiums have normalized in the U.S. and globally." Fed on hold through 2026, first hike penciled for H2 2027; only ~30bp of hikes priced over the next year. Why it matters: a direct, named rebuttal to the supply-panic narrative, the upward-sloping curve is normal, not a fiscal warning.

3. TIPS are screaming disinflation, Jeff Snider (pundit/strategist), Eurodollar University, Jun 25, "Gold Is Crashing… While The Dollar Rips Higher." 10-year break-evens are "legitimately crashing," a move he says rhymes only with the deflation scare of Mar–Apr 2025 and the Aug-2024 carry unwind, and one that has run "much farther than oil prices have." With 2s up and 10s/30s down, the curve is ~25bp from re-inverting; term SOFR futures price a hike then immediate cuts, "the market strenuously disagreeing with the Fed." Why it matters: if he's right, the long end keeps rallying and the bears' steepener gets postponed again.

4. The fiscal meter, in record territory, Mike Maharrey (Money Metals, pundit/strategist), Money Metals' Weekly Market Wrap, Jun 24, "Warsh Takes the Reins at the Fed." May interest expense was $132.62B (+18.8% m/m, a new monthly record); FY26 interest is $866.82B (+11.7% y/y), now the second-largest line item behind only Social Security. The May deficit was $292.65B, and the headline -7% y/y is a calendar illusion; adjusted, it was +32%. The tariff "gravy train" also reversed: $21.97B of refunds (post the Supreme Court ruling) pushed customs receipts negative for the first time in years. Why it matters: the supply pipeline keeps widening regardless of where yields trade this week.

5. The rollover cliff, James Lavish (pundit/strategist), On The Tape with Danny Moses, Jun 24, "James Lavish Gives Us His 'Strategy' for Trading These Markets." Lavish puts gross issuance need near $19T over the next year ($9T maturing + ~$4T rolling + ~$2T deficit), a legacy of Treasury "not terming out the debt" in the low-rate era. His "four-door" frame (cut spending, raise taxes, default, or debase) ends at debasement, hence gold, Bitcoin and equities as the hedge. Why it matters: puts a number on the supply wall the steepener bulls keep pointing at.

The debate

Both sides had genuine coverage this week, so both get steel-manned.

Bears (structural supply / term-premium re-rating). Sheehan's doom loop "is real," issuance begets interest begets more issuance, and "generally it makes things drift higher on the long end" as foreign buyers fade. Maharrey's catch-22: the Fed "needs to keep buying bonds… to facilitate the out-of-control borrowing," and can't shrink the balance sheet "without driving yields even higher." Lavish's ~$19T wall is the supply that has to clear. But note what the tape did not support this week: nobody called for a 5%-handle 10Y or declared duration uninvestable. Even the bears framed it as a slow drift and a later steepener, and Sheehan explicitly pushed back on the dollar-to-zero crowd, "it's a relative game… people are still going to buy Treasuries."

Bulls (long-end constructive, at least tactically). Making Sense argues term-premium normalization has already happened and the long-end back-up was monetary, not fiscal, Fed on hold to 2027. Snider goes further: break-evens crashing, demand destruction, a curve drifting back toward inversion, the long end rallies and the Fed's hike pricing risks being a "Trichet mistake." RenMac splits the difference: yields are falling, but "most of that's been driven by inflation expectations, not by real rates," and sticky real yields keep the pressure on duration assets (RenMac Off-Script: Flying Blind, Jun 26).

Read-throughs

  • Long-duration equities: Sheehan is positioned defensively, "this becomes a duration story," favoring healthcare and staples (short-duration) over long-duration tech "while things are trying to find their level."
  • Gold / dollar: Snider's mechanical read, foreign officials sell USTs and gold together to raise dollar liquidity, so DXY (>1yr high) and gold (~25% off its highs) move inversely; he's constructive on gold longer-term but cautious near-term (gold/silver ratio ~68). Lavish and Maharrey stay structurally long gold as a debasement hedge.
  • Credit: RenMac flags private credit as the contagion worry, citing a reported "17% redemptions" at a large fund, while public IG/HY spreads are "still in a good spot." Ramsey (Making Sense): EM sovereign spreads at 20-year tights (+2.5% H1, ~30bp tighter), likely modestly wider into year-end if the Fed leans hawkish.
  • Rates / FX: Chandler (The KE Report, Jun 29), oil's round-trip from ~$100 to ~$68.50 pulled Italy 10s ~40bp and UK 10s ~25bp lower this week vs only ~4bp for US 10s on firmer US data; the market now prices ~1 hike plus ~20% of a second. His tail risk: a Supreme Court ruling letting the President fire Fed governors would sell off "the dollar [and] bonds… and probably drag equities down as well."
  • Crowding-out, the slow burn: The New Bazaar's Ernie Tedeschi (Yale Budget Lab) quantifies the quiet cost, post-2015 borrowing has lifted the rate on a ~$400K mortgage by $2,500/yr ($76K over its life), and foreign UST ownership has roughly halved from ~50% (2008) to ~25% today (The New Bazaar, Jun 26).

What changed

First edition, no prior-week baseline to diff against yet. For next week's watch-list, these themes had no meaningful podcast coverage this window: JGBs/BoJ/MoF, euro-periphery spreads (OAT-Bund, BTP-Bund), Treasury auction mechanics (tails, bid-to-cover, takedown), the QRA, TGA/debt-ceiling, shutdown/CR politics, and the MOVE / swap-spread / repo / MBS complex.