Fixed Income Update
Treasury yields moved gradually higher this week before the selloff accelerated on Friday, pushing government bond yields around the world to levels not seen in decades.
In the U.S., inflation was the dominant driver of this week’s rise in Treasury yields. Data released this week showed producer prices accelerating at their fastest pace since March 2022, with the PPI index rising 1.4% in April - nearly three times the expected 0.5% increase. Adding to inflationary pressure is the lack of any meaningful resolution to the war and the continued closure of the Strait of Hormuz. West Texas Intermediate crude prices, already elevated, rose another 9% over the past week. The 10-year Treasury yield climbed from 4.35% at Monday’s close to 4.57% in early Friday trading, its highest level since last May, partly because 10-year inflation expectations have risen to 2.5%, their highest level since March 2023. Since April 24, 5-year forward, 5-year inflation expectations have moved up from a one-year low toward the middle of their three-year range, suggesting that traders are becoming less confident that long-run inflation is under control.
Rising yields are not limited to the U.S. Japanese 10-year government bonds are trading at 2.70% this morning, a level last seen in May 1997. Japanese 30- and 40-year bonds are trading above 4% for the first time since Japan began issuing those maturities in 1999 and 2013, respectively. German 10-year bunds are trading at 3.14%, their highest level since May 2011, while UK 10-year gilts are at 5.15%, a level last seen in June 2008. Each of these countries is arguably more sensitive to the closure of the strait, and bond markets are reflecting growing concern as the war drags on. In the UK, investors are also contending with a brewing leadership battle that could usher in more public spending.
This creates a complicated backdrop for incoming Fed Chair Kevin Warsh, who was confirmed by the Senate this week. Jerome Powell’s term as chair ends today, Friday, and with rate cuts off the table, we think Warsh is likely to focus on the Fed’s process and communications. Warsh has been critical in the past, saying he believes Fed officials communicate too much. We are not aware of any specific changes he plans to make, but with a month until the next FOMC meeting, he has some time to prepare.
For the week, Treasury yields are higher by as many as 23 basis points.
As of May 15, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.34% |
2.56% |
-.22% |
2.41% |
-.07% |
|
Taxable MMF |
3.63% |
3.65% |
-.02% |
4.28% |
-.65% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.07% |
3.89% |
.18% |
3.96% |
.11% |
|
5-Year Treasury |
4.23% |
4.00% |
.23% |
4.06% |
.18% |
|
10-Year Treasury |
4.57% |
4.36% |
.21% |
4.43% |
.14% |
|
30-Year Treasury |
5.11% |
4.94% |
.17% |
4.89% |
.22% |
|
5-Year Exp. Inflation |
2.69% |
2.63% |
.06% |
2.40% |
.28% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.66% |
2.62% |
.04% |
2.94% |
-.28% |
|
5-Year Municipal** |
2.79% |
2.72% |
.07% |
3.05% |
-.26% |
|
10-Year Municipal** |
3.19% |
3.12% |
.07% |
3.46% |
-.27% |
|
30-Year Municipal** |
4.50% |
4.46% |
.04% |
4.71% |
-.20% |
|
|
|
|
|
|
|
|
Fed Funds |
3.75% |
3.75% |
.00% |
4.50% |
-.75% |
|
Prime Rate |
6.75% |
6.75% |
.00% |
7.50% |
-.75% |
|
Dollar*** |
$99.19 |
$97.90 |
$1.29 |
$100.88 |
-$1.69 |
|
CRB |
$400.28 |
$389.44 |
$10.84 |
$295.86 |
$104.42 |
|
Gold |
$4,560.40 |
$4,730.70 |
-$170.30 |
$3,226.60 |
$1,333.80 |
|
Crude Oil |
$104.10 |
$95.42 |
$8.68 |
$61.62 |
$42.48 |
|
Unleaded Gasoline**** |
$3.66 |
$3.53 |
$0.13 |
$1.98 |
$1.68 |
Note: Municipal yields are as of the previous business day.
* 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 finished a see saw week of performance on weaker footing as growing inflation worries, higher Treasury yields, and a move back up in oil prices interrupted the recent AI-led rally. Through Thursday, major US indices were mostly higher on the week, supported by large cap technology and semiconductor names. Risk appetite took a pause Friday morning as investors assessed whether stock gains had run ahead of fundamentals within the tech space.
Although investor attention was largely centered on President Trump-President Xi summit, developments in the Middle East remained a sentiment factor. Trump rejected Iran’s latest peace proposal, and with negotiations between the two sides seemingly stalled, crude prices rose throughout the week. West Texas Intermediate crude approached $105/barrel Friday morning, reinforcing market concerns energy prices could meaningfully pressure the global economy.
While the Trump-Xi summit generated a constructive tone, few market-moving outcomes materialized. It was announced China had agreed to purchase 200 Boeing planes and was reported the US may ease restrictions on Chinese firms access to Nvidia H200 chips. The two stocks reacted in vastly different manners with Boeing shares trading lower by 4.7%, as the 200 figure disappointed some investors, and Nvidia shares jumping higher by 4.4% in Thursday’s session. Broadly speaking, the summit lacked any meaningful policy breakthroughs necessary to materially change US-China trade sentiment; Trump invited Xi to the White House in September.
Inflation updates did little to quell inflationary concerns. April Core CPI rose 0.4% m/m, and Core PPI rose 1.0% m/m, both above consensus for 0.3% m/m increases each. Elevated energy prices have begun to lift inflation readings while supply disruptions tied to the Strait of Hormuz closure have pressured select commodities. Kevin Warsh was confirmed by the US Senate as Federal Reserve Chairman this week, he and the Fed are faced with the challenge of navigating resilient growth and sticky inflation which may lead towards a more hawkish policy path in the coming months.
While US equities have remained somewhat resilient against the recent moves higher in Treasury yields and oil prices, investors continued to favor the AI trade given its secular growth tailwinds. Friday’s market action suggested some of that resilience may be fading. Following an extended run, some investors appeared to lock in gains, particularly in some AI trades that have produced robust returns over a short period. While the equal-weighted S&P 500 has gained a respectable 8.3% since March 30th, the cap-weighted S&P 500 surged higher by 18.4%, a reflection of the narrow market leadership primarily from select mega cap tech and semiconductor names. The iShares Semiconductor ETF (SOXX) has surged 71.1% over the same timeframe.
Fundamentals largely remain solid for US companies with earnings growth a supportive factor behind the market’s recent strength. The question for the market remains if earnings growth can continue to offset both a challenging inflationary backdrop and a potential hawkish shift in Fed policy. Next week’s quarterly results from Nvidia could be an important barometer for the AI trade.
As of May 14, 2026
|
Index |
Current Week |
Month of May |
YTD |
|
Dow Jones Industrial Avg. |
0.93% |
0.86% |
4.71% |
|
S&P 500 |
1.40% |
4.10% |
10.04% |
|
Nasdaq |
1.49% |
7.03% |
14.83% |
|
MSCI EAFE |
0.02% |
1.46% |
7.91% |
|
Russell Mid Cap |
-0.05% |
0.77% |
9.56% |
|
Russell 2000 |
0.08% |
2.29% |
15.79% |
