US Bonds: The Cost of Capital — May 7, 2026 [RISK ON]

REGIME: The current regime is BEARISH for US Bonds, as evidenced by the Alphameter score of +69/100, which indicates a RISK-ON environment where rising yields and growth expectations typically lead to underperformance of bonds, with TLT and IEF exhibiting -5.7%/yr and -2.6%/yr returns, respectively, during risk-on episodes. SENTIMENT DRIVER: The most important headline catalyst is "Surging gas prices are hitting lower-income households harder, New York Fed study shows", which may lead to increased concerns about inflation and interest rates, causing a rise in yields and subsequently putting downward pressure on US Bonds price action. ANALYSIS: Through the lens of "The Cost of Capital", the current steepening yield curve, with a 10Y-2Y Yield Curve Spread of 0.49%, suggests a growth-oriented environment, which is typically unfavorable for US Bonds, as rising yields increase the cost of capital and make existing bonds less attractive. The normal yield curve shape implies that market participants expect higher growth and inflation, leading to higher yields and lower bond prices. According to the backtest data, bonds are a clean risk-off asset, and the current risk-on environment, as indicated by the Alphameter, suggests that bonds may underperform. The fact that US Bonds are 4.1% above their 200-day SMA may also indicate a potential reversal. RISK FACTORS: Two specific catalysts that could flip the signal BEARISH for US Bonds are a 10Y-2Y Yield Curve Spread exceeding 0.75%, which would indicate a strong growth environment and higher yields, and a Jobless Claims figure below 180K, which would suggest a tight labor market and potential for higher interest rates. WATCH: On 2026-05-08, the NFP — Non-Farm Employment Change event will be closely watched, as a strong employment figure could lead to increased expectations of higher interest rates and a subsequent rise in yields, putting downward pressure on US Bonds.