Bond storm of 2026 may be passing, but Fed headwinds linger
TLT•A possible US-Iran truce has helped ease oil prices and Treasury yields, but inflation remains high and Fed officials have signaled they may raise rates more aggressively. Bond markets also face pressure from government deficits and borrowing tied to AI investment.
1. Oil and yields retreat
Brent crude rose more than 70% to a four-year high of $120 a barrel in April, then fell below $90 this week, still almost 30% above its February level. US regular gasoline prices slipped below $4 a gallon, but remain about 35% above pre-war levels. Two-year Treasury yields are 150 basis points above their pre-war level, while 10-year yields near 5% are about 100 basis points higher.
2. Fed signals tougher policy
October core consumer prices rose 0.3%, a level Fed Governor Christopher Waller said would prompt him to consider a half-point rate increase at the December 8-9 meeting. Fed futures priced in an outside chance of a hike greater than 25 basis points. Dallas Fed President Lorie Logan said policy was about 50 basis points below a modestly restrictive level and officials could move more rapidly this winter.
3. Debt pressures remain
The article says ballooning budget deficits and debt are raising concerns about sustainability, while AI investment has driven borrowing by large technology companies that competes with government debt for savings. BlackRock strategists said a material slowdown in AI investment in 2027, though far from certain, could lower bond yields by easing competition for capital.
