Fixed Income & Equities Markets Week in Review

Treasury yields moved higher this week as oil prices pushed briefly above $100 per barrel and investors pushed expectations for Fed rate cuts further into the future.

The bond market felt a bit unhinged at times as investors tried to adjust to the geopolitical impacts on higher energy prices, elevated headline inflation, and slowing economic growth. That combination leaves the Federal Reserve in a difficult spot.

Two-year Treasury yields, which tend to track expectations for Fed policy, climbed as high as 3.75% during the week. The effective fed funds rate currently sits at 3.64%, so this is the first time in roughly three years that the 2-year yield has traded above the policy rate.

The 2-year generally reflects where the market expects the fed funds rate to average over the next two years. For most of the past several years it traded below the policy rate as investors anticipated rate cuts. With energy prices now rising due to the Iran war, the market still expects cuts eventually, but the timeline has been pushed much further out. At the moment, the first cut is not expected until around January 2027, with another sometime in early 2028.

Inflation data this week painted a mixed picture, although most of it reflected conditions before the latest escalation in the Iran conflict and had limited market impact.

CPI showed consumer prices rising 0.3% in February and core prices up 0.2%, bringing year over year inflation to 2.4% headline and 2.5% core. Under normal circumstances that likely would have been seen as encouraging, with core CPI now at its lowest level since 2021 for the second straight month.

PCE, the Fed’s preferred inflation measure, told a slightly different story. Prices rose 0.4% in February, the largest monthly increase since last February, pushing the year over year rate to 3.1%, the highest since January 2024. Even before the recent move in energy prices, inflation was not cooling quite as convincingly as CPI might suggest.

Growth data added another wrinkle. The final revision to fourth quarter GDP lowered growth from 1.4% to 0.7%, the slowest pace in three quarters. The four quarter average slipped from 2.4% to 2.1%, while full year GDP grew 2.1%, the slowest pace since 2020. Slower growth alongside stubborn inflation pressures has brought some stagflation concerns back into the conversation.

The path of the war will likely remain the key driver for markets in the near term. Investors are trying to gauge how sustained energy disruptions could affect both inflation and growth.

Markets briefly rallied earlier in the week after the President suggested the conflict could be over “very soon,” but those gains faded after other members of the administration said attacks would continue “until they surrender or completely collapse.” Iranian leadership has also ruled out a ceasefire so far.

Until there is a clearer path toward de-escalation, disruptions in energy markets will likely continue to influence bond yields. At the same time, the growth drag that typically comes with meaningfully higher oil prices should help keep some pressure off longer term yields.

As of March 13, 2026