August underscored a widening divergence in policymakers’ approach to markets with an unmistakably active Treasury paired with a Federal Reserve that, under Chair Kevin Warsh, has talked tough but, for a fifth consecutive meeting has taken no action on rates. On Aug. 19, Treasury Secretary Scott Bessent unveiled an expanded long-end buyback program, dubbed the “Treasury Twist,” which doubles the size of liquidity-support purchases for 10- to 30-year off-the-run coupons to at least $4 billion per operation beginning Sept. 9. It was the latest in a string of recent Treasury actions, including joint U.S.-Japan yen operations in late July and early August, fresh GENIUS Act stablecoin proposals, and an “economic D-Day” sanctions campaign targeting Iran’s trading partners. By contrast, Fed Chair Kevin Warsh continued hawkish rhetoric across two Federal Open Market Committee meetings and during his Jackson Hole speech, but so far has taken no action on rates despite elevated inflation. His hawkish Jackson Hole address on August 29th reaffirmed the Fed’s 2% inflation target and warned that recent softer inflation prints may not reflect genuine improvement in the underlying trend. Rates responded swiftly to the upside, more so on the short end of the curve (bear flattening), as probabilities for a September rate hike spiked from 36% to 67%.
The 30-year UST yield topped at 5.34% last month, its highest level since the summer of 2007, while the 10-year UST yield, at 4.76%, reached a 17-month high. For rates, the path of least resistance remains higher, driven by rising fiscal deficits and Treasury supply, inflation pressures tied to tariffs, energy prices and AI-related buildout, and a fast-growing wall of AI-linked corporate debt competing directly with Treasuries for duration demand. More than half of 2026’s mega-cap technology bond financings have carried maturities of 10 to 50 years, positioning hyperscaler balance sheets as a structural competitor to the long end of the UST curve. Layered on top of this are the ongoing U.S.-Iran conflict and a federal debt load that has surpassed $40 trillion. Persistent fiscal excess, elevated energy prices and record AI capital issuance are crowding out Treasuries at precisely the moment the Fed has signaled it may need to tighten rather than ease.
The S&P 500 (+2.7%) and Nasdaq-100 (+4.2%) posted their best August performance since 2021, with the Nasdaq-100 snapping two consecutive months of losses. The Magnificent Seven (+4.4%) and NDX Equal Weight (+4.1%) led the flagship complex, while the more cyclically oriented Dow Jones Industrials (+1.5%) and S&P Midcap 400 (+0.1%) lagged. Leadership was driven by industries connected to the debasement trade such as gold miners (GDX +33%), oil services (OIH +12%), and software (+16%).
The iShares Software ETF (IGV) declined 37% from its Q4 2025 highs to its low in April. However, over the ensuing four months, it has rebounded 50%. It closed out August at a key technical level representing its high from 2024, which could prove to be a formidable test of resistance in the near term.
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