Augustus and the Bond Factory: US Rates Strategy | North America

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Idea

August 14, 2026 08:59 PM GMT

US Rates Strategy | North America

Morgan Stanley & Co. LLC

Matthew Hornbach

Strategist

Augustus and the Bond Factory

Martin W Tobias, CFA

Strategist

We stay in UST 7s30s steepeners and see the historically

stronger half of August still to come for USTs. A September glut

of IG supply, with 10y equivalent duration issued up more than

75% from August in recent years, should keep the curve under

steepening pressure into and beyond month-end.

Shaun Zhou

Strategist

Aryaman Singh

Strategist

Eli P Carter

Strategist

Key Takeaways

Over the past 25 years, the UST index returned 0.64% in August in excess of Tbills, its best month, and the result clears the 95% significance threshold.

Since 2011, the August pattern has concentrated in the second half of the month.

USTs delivered negative second-half excess returns in only 2 of 14 years.

Warsh speaks at Jackson Hole on August 28 and IG issues in September have run

more than 50% above August, which should keep the UST curve steepening.

We maintain UST 7s30s steepeners, DV01 neutral, at 75bp with a target of 100bp

and a trailing stop of 63bp, our preferred expression of the steepening view.

The risk to the steepener is August inflation data that reignite hawkish Fed tail

risks and restore the rate hike risk premium that markets began pricing out.

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