US Bonds: The Cost of Capital — July 27, 2026 [RISK OFF]

REGIME: The current market regime is BEARISH for US Bonds, as indicated by the Alphameter score of -12/100, which suggests a risk-off environment where bonds are likely to underperform, consistent with the backtest data showing TLT earning only +1.2%/yr in risk-off episodes. SENTIMENT DRIVER: The lack of specific headlines today means that the sentiment driver is the overall market tone, which is being driven by the yield curve shape, currently at 0.36% and steepening, indicating a risk-on signal, but the Alphameter score overrides this signal, indicating a risk-off environment. ANALYSIS: Through the lens of the Cost of Capital, the steepening yield curve suggests that the market is pricing in growth and inflation, which would typically be bearish for bonds, but the Alphameter score indicates a risk-off environment, where bonds would typically be sought as a safe haven, however, the backtest data shows that long bonds barely earn in either regime, suggesting that the traditional defensive role of bonds has been broken, and the current price action, with US Bonds 9.7% above their 200-day SMA, may be due for a correction, especially considering the yield curve is steepening, which has historically been a risk-on signal, earning +1.3%/yr for TLT in risk-on episodes. RISK FACTORS: Two specific catalysts that could flip the signal BEARISH for US Bonds are a 10Y-2Y Yield Curve Spread above 0.5%, indicating a strongly steepening yield curve, and a break above 5.0 for the US Bonds price, which would indicate a strong bullish trend, causing bonds to underperform, as the backtest data shows that bonds earn lower returns in risk-on episodes. WATCH: 2026-07-29: FOMC Rate Decision — Federal Funds Rate, as this event has the potential to significantly impact the yield curve and the overall market tone, and thus the price action of US Bonds.