US Bonds: The Cost of Capital — August 15, 2026 [RISK ON]

REGIME: The current regime is BULLISH, driven by the Alphameter's RISK-ON episode, which is supported by a steepening yield curve, with the 10Y-2Y Yield Curve Spread at 0.51%, indicating a growth environment. SENTIMENT DRIVER: The most important headline catalyst is the second Yahoo Finance headline, "10-year Treasury yield inches higher as traders digest soft retail sales, monitor the Middle East", which has contributed to the 1.7% 7-day increase in US Bonds price, as traders balance growth concerns with geopolitical risks. ANALYSIS: Through the lens of the Cost of Capital, the steepening yield curve suggests that the market is pricing in higher growth expectations, which is consistent with the RISK-ON regime, where long bonds like TLT have historically earned +1.3%/yr, albeit barely. The current yield curve shape implies that risk assets are likely to outperform, as the cost of capital is increasing, making it more expensive to borrow and invest in riskier assets. However, the backtest data also shows that IEF (7-10Y) has earned +1.5%/yr in risk-off episodes, indicating that shorter-term bonds may still provide some defensive benefits. RISK FACTORS: Two specific catalysts that could flip the signal BEARISH for US Bonds are a 10Y-2Y Yield Curve Spread inversion below -0.1%, indicating a recessionary environment, and a 10-year Treasury yield increase above 2.5%, which would signal a significant increase in the cost of capital and potentially lead to a risk-off episode. WATCH: The event to watch is the upcoming retail sales data release, which could impact the yield curve shape and the overall risk environment, potentially affecting the US Bonds price action.