TS Pulse: Twist and shout

US Treasury Secretary Scott Bessent invoked Operation Twist to try to tame climbing long-end yields, buying around $4bn of bonds. The intervention worked: 30-year yields dropped by 11bps. But then resumed their claim over the next two days, recovering 8bps.

• UK inflation matched expectations in July, reducing the market’s expectations for rate hikes this year. Headline inflation climbed to 2.9% from 2.6% in June, the core rate remained at 2.6%, while the PPI input figure fell markedly to 4.9%. The first fully priced-in hike from the Bank of England is now for December’s meeting, with a second in Q2 2027.
• EU inflation also matched expectations of 2.9% for the headline number and 2.5% for the core measure. The likelihood of a hike at September's ECB meeting dipped marginally, but remains priced at around 95%, with its second priced for before the Bank of England’s second.
• US tariffs on Canada were delayed, but when negotiations broke down, the 50% tax was brought in on around $20bn of goods Canada sells into the US. Canada is set to announce its own “dollar for dollar” measures according to its Prime Minister Mark Carney.
• The Fed Meeting Minutes saw officials describe the labour market as stable and inflation outlooks as “highly uncertain,” with the re-escalation of the Iran war “clouding the inflation outlook”. Several Fed officials indicated that policy tightening would be necessary if inflation didn’t decline. While the longer end of the US Govt yield curve has been climbing, expectations for when the Fed hikes have slid. After the meeting it was a coin toss between September and October, whereas the market is now pricing it for December.  
• UK retail sales volumes fell 0.5% month-on-month in July, in line with market expectations and following a downwardly revised 0.7% rise in June. This is the first drop in three months, taking the annual rate of growth down to 1.6%. However, consumer confidence rose to a two-year high, with more optimism about the economy and personal finances over the next 12 months, supported by the appointment of new Prime Minister Andy Burnham and easing energy prices. However, rapidly rising inflation still seems to be people's biggest worry.

Source: Bloomberg; pricing as per 25 August 2026

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