Bond storm of 2026 may be passing, but Fed gusts linger
TLT•Oil prices have fallen from an April peak of $120 a barrel to below $90, but remain nearly 30% above February levels, while Treasury yields and inflation remain elevated. Fed officials have signaled they may raise rates more aggressively, even if the Iran war winds down.
1. Oil and yields retreat
Brent crude futures surged more than 70% to a four-year high of $120 a barrel in April after the US and Israel attacked Iran, disrupting a route for a fifth of global crude supplies. Prices fell below $90 this week but are still nearly 30% above February levels. US gasoline prices dipped below $4 a gallon on Tuesday for the first time since July, though they remain about 35% above pre-war levels.
2. Fed signals tougher policy
October core consumer prices rose 0.3%, a reading Fed Governor Christopher Waller said would prompt him to consider a half-point rate hike at the December 8-9 meeting. Fed futures priced in an outside chance of a hike larger than 25 basis points. Dallas Fed President Lorie Logan said policy remained about 50 basis points below the modestly restrictive level she considered necessary.
3. Debt pressures remain
Two-year Treasury yields remain about 150 basis points above their pre-war level, while 10-year yields are around 5%, about 100 basis points higher than in February. The article also cites ballooning budget deficits, higher debt-servicing costs and borrowing by AI hyperscalers as pressures on bond markets. BlackRock strategists said a material slowdown in the AI buildout in 2027, though far from certain, could ease competition for capital and lower bond yields.
