Bond traders push back

Bond traders have swung back toward an inflation view of the economy, pushing Treasury yields higher and cutting bets on a near-term Federal Reserve rate cut. (bloomberg.com) The shift accelerated after March consumer-price data showed United States inflation rising 0.9% from February and 3.3% from a year earlier, with gasoline prices driving much of the jump. Core inflation, which strips out food and energy, rose 0.2% on the month and 2.6% on the year. (bls.gov) Federal Reserve minutes released April 8 showed officials were already grappling with an oil shock from the Middle East conflict at their March 17-18 meeting. The minutes said crude futures had risen about 50% during the intermeeting period and that futures markets did not fully price in a rate cut until December. (federalreserve.gov) That matters because bond prices move opposite yields, and short-dated Treasury yields often track where traders think the federal funds rate is headed. When investors think inflation will stay elevated, they demand higher yields and push expected rate cuts further out. (federalreserve.gov) The market had briefly leaned the other way after a two-week ceasefire between the United States and Iran revived hopes that lower oil prices could give the Fed room to ease later in 2026. Reuters reported on April 8 that traders had been looking for a cut this year if the truce held and inflation risks faded. (usnews.com) That optimism faded again after weekend talks ended without a peace agreement and investors returned to the risk that higher energy costs will feed broader price pressures. Bloomberg reported that the Treasury market’s focus shifted back to inflation as the ceasefire looked increasingly fragile. (bloomberg.com) By April 10, the 10-year Treasury yield finished at 4.31%, the 2-year at 3.81%, and the 30-year at 4.91%, according to Advisor Perspectives’ daily Treasury snapshot based on market data. Those levels were higher than a month earlier for the 2-year and 10-year notes. (advisorperspectives.com) The Fed’s own minutes showed a split between survey expectations and market pricing. The New York Fed’s dealer survey still showed a median expectation for two quarter-point cuts this year, but options markets had shifted toward no change in 2026 and put the probability of rate hikes through early 2027 at about 30%. (federalreserve.gov) Other markets moved with the same logic on April 13. Reuters reported that gold fell as a stronger dollar and fading hopes for Fed cuts reduced demand for the metal, which does not pay interest. (reuters.com) For now, the bond market is trading less on recession fears than on the idea that an energy shock can keep inflation above the Fed’s 2% target for longer. Until oil prices ease or inflation data cools, traders are treating lower rates as a later story. (bloomberg.com)