A busy week is closing with some chunky 10-yr sales that have since been absorbed. Investors didn’t shy away from the possibility of a 50bp rate cut July 31, leaving the 30-yr on a solid note that is close to a full recovery from last week’s difficult sell-off. Away from the Dow, stocks are down on the day within an hour of closing and will end the week with a modest loss. Brent crude is well above $62. The market was already volatile enough without the NY Fed President’s “dry powder” remarks Thursday afternoon, but welcome to life during a transition period for Fed policy. Chair Powell has been smoothing the way for lower rates, but communication mis-fires are anything but smooth. One clear takeaway this week, Fed officials are not paying that much attention to second quarter data reports, focusing almost exclusively on forward risks. The other takeaway, improved performance at the long end of the UST curve still leaves yields technically vulnerable to an upturn once the FOMC is out of the way. The Fed’s balance sheet policy has been out of sight, out of mind for more than three months. It will stay there another three months but not forever. The forces that play between the private market and the Fed’s balance sheet can swing 5-10 year rates more than investors have considered in recent years. We outline the framework for analysis and update an important “fair value” model for 10-yr Treasuries. Bank portfolios started a grabfest for bonds in June. They haven’t stopped yet. A series of charts updates the three reasons for the surge, and one of them is a major surprise.