Fixed Income Update
U.S. Treasury yields rose to their highest levels of the year this week as renewed escalation in the Middle East pushed oil prices higher and increased market speculation that the Federal Reserve could raise rates as soon as next week.
The two-year Treasury yield, which is most sensitive to expected Fed policy, climbed to 4.37% on Thursday, its highest level in more than a year. The 10-year yield rose to 4.70%, a 2026 high, while the 30-year yield reached 5.16%, just below its 2026 high of 5.18% and near the highest levels seen since 2007.
The move in rates has been driven in part by the ongoing back-and-forth between the U.S. and Iran, including reports that Iran-backed Houthi forces struck two Saudi oil tankers in the Red Sea. Front-month WTI crude traded above $90 for the first time in six weeks, while Brent crude, the global benchmark, moved above $100.
Despite the recent increase in energy prices, demand was soft for this week’s $21 billion 10-year Treasury Inflation-Protected Securities (TIPS) auction, which cleared at a yield of 2.44%, the highest auction result since 2008. The rise in Treasury yields over the past two weeks appears to reflect an increase in real, or inflation-adjusted, yields rather than a meaningful rise in inflation expectations. That dynamic suggests several forces may be at work: investors expect the Fed to respond forcefully to any renewed inflation pressure; sustained capital demand from technology companies building AI infrastructure may be pushing investors to require higher yields; and ongoing concerns about fiscal discipline may be increasing the return investors demand to hold sovereign debt.
The Fed meets next week, and traders appear to be considering whether a Warsh-led Fed may be more willing to deliver policy surprises than the Powell Fed. In recent years, investors became accustomed to policymakers guiding market expectations ahead of meetings when pricing appeared misaligned with the likely policy outcome. By contrast, markets are now pricing roughly a 33% probability of a rate hike next week, despite recent Fed commentary suggesting a very low likelihood of any change in policy.
As of July 24, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.65% |
2.36% |
.29% |
2.61% |
.04% |
|
Taxable MMF |
3.64% |
3.63% |
.01% |
4.27% |
-.63% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.33% |
4.18% |
.15% |
3.92% |
.41% |
|
5-Year Treasury |
4.43% |
4.28% |
.15% |
3.96% |
.47% |
|
10-Year Treasury |
4.67% |
4.55% |
.12% |
4.40% |
.27% |
|
30-Year Treasury |
5.15% |
5.07% |
.08% |
4.94% |
.22% |
|
5-Year Exp. Inflation |
2.27% |
2.28% |
-.01% |
2.51% |
-.24% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.71% |
2.50% |
.20% |
2.56% |
.15% |
|
5-Year Municipal** |
3.04% |
2.80% |
.24% |
2.70% |
.34% |
|
10-Year Municipal** |
3.47% |
3.25% |
.22% |
3.55% |
-.07% |
|
30-Year Municipal** |
4.72% |
4.51% |
.21% |
5.07% |
-.35% |
|
|
|
|
|
|
|
|
Fed Funds |
3.75% |
3.75% |
.00% |
4.50% |
-.75% |
|
Prime Rate |
6.75% |
6.75% |
.00% |
7.50% |
-.75% |
|
Dollar*** |
$101.40 |
$100.77 |
$0.64 |
$97.38 |
$4.03 |
|
CRB |
$400.18 |
$381.96 |
$18.22 |
$304.37 |
$95.81 |
|
Gold |
$4,064.40 |
$4,018.80 |
$45.60 |
$3,373.50 |
$690.90 |
|
Crude Oil |
$89.58 |
$82.49 |
$7.09 |
$66.03 |
$23.55 |
|
Unleaded Gasoline**** |
$3.40 |
$3.39 |
$0.00 |
$2.03 |
$1.36 |
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
US equities continued to cool off this week following a strong second quarter, as risk appetite came under pressure from renewed geopolitical tensions, higher oil prices, rising Treasury yields, firmer Fed rate hike expectations, and selective earnings reactions. Through Thursday’s close, major US indices were lower for both the week and the month to date, led by the Nasdaq Composite, down more than 4% in July.
Geopolitical risk returned to the forefront as tensions with Iran have re-escalated in recent weeks. The US conducted its 13th consecutive day of strikes on Iranian targets, and President Trump said he is weighing a “massive attack” on Iran. Investors are also monitoring the risk of regional spillover after Iranian-backed Houthis attacked Saudi oil tankers in the Red Sea. Although the two sides remain in communication, progress has been limited, and Iran reportedly rejected a proposed 10-day ceasefire. US equities have absorbed the headlines relatively well so far, reflecting a consensus view that a diplomatic offramp remains the most likely outcome. Still, the conflict bears watching: any renewed disruption to energy supplies could reignite inflation concerns, push bond yields higher, and pressure equity valuation multiples.
West Texas Intermediate crude, which had fallen below $70/barrel less than a month ago, briefly moved back above $90/barrel this week before trading above $89/barrel as of Friday morning. Reports that Pakistan is pushing for renewed US-Iran peace talks helped oil prices ease Friday, but the recent move higher has revived inflation concerns and pushed the 10-year US Treasury yield above 4.70% late in the week before easing to above 4.67% Friday morning. Rate expectations also shifted, with the CME FedWatch Tool showing market-implied odds of a Fed hike at next week’s July meeting rising to 35.8% from 12.8% a week earlier. Probabilities now imply less than a 10% chance that the Fed leaves rates unchanged through December. New Fed Chairman Warsh has emphasized bringing inflation back to the Fed’s 2% target, leaving investors focused on whether higher energy prices could alter the policy path.
Eighty-six S&P 500 companies reported this week, and while Q2 is expected to deliver another quarter of 20%+ earnings growth, the bar appears to be elevated, especially for AI-linked companies. Alphabet and Tesla highlighted the market’s reduced tolerance for rising capital intensity. Despite 80%+ year-over-year Google Cloud revenue growth, Alphabet shares fell more than 7% on Thursday after the company raised its 2026 capital expenditures forecast by $15 billion to $195 billion–$205 billion and signaled a sizable increase for 2027. Tesla declined more than 14% after missing earnings expectations, reporting higher operating expenses, raising capital expenditure guidance, and posting negative free cash flow. Alphabet also reported negative quarterly free cash flow. These results weighed on other Magnificent Seven names, with Meta Platforms, Microsoft, and Amazon trading lower in sympathy. The Roundhill Magnificent Seven ETF (MAGS) was down roughly 5% for the week through Thursday’s close as several mega cap technology names continue to lag broader market performance in 2026.
While hyperscalers faced pressure over AI capital expenditure concerns, AI infrastructure beneficiaries held up better. Memory and semiconductor stocks were positive through Thursday, with the Roundhill Memory ETF (DRAM) and the iShares Semiconductor ETF (SOXX) each up more than 2%. That divergence suggests investors have not deserted the AI trade, but that they have increasingly favored margin, free cash flow, and earnings visibility. Even so, AI infrastructure names have experienced some wild price moves in recent months; memory and semiconductor stocks traded sharply lower as a group on Friday.
Next week brings earnings from Amazon, Apple, Meta Platforms, and Microsoft, along with the Fed’s July meeting. Investors will be focused on AI monetization, capital expenditure forecasts, and margin resilience. Consensus expects the Fed to remain on hold, and Warsh’s press conference is unlikely to provide much additional clarity on the rate path. Markets could see volatility around oil prices, bond yields, and mega cap technology earnings.
As of July 23, 2026
|
Index |
Current Week |
Month of Jul. |
YTD |
|
Dow Jones Industrial Avg. |
-0.82% |
-1.11% |
8.54% |
|
S&P 500 |
-0.65% |
-1.17% |
8.92% |
|
Nasdaq |
-1.50% |
-4.10% |
8.50% |
|
MSCI EAFE |
0.19% |
-0.31% |
9.50% |
|
Russell Mid Cap |
-0.43% |
-1.32% |
13.78% |
|
Russell 2000 |
-0.74% |
-2.75% |
19.20% |
