Fixed Income Update
Bond markets were under pressure again this week as investors continued to wrestle with rising oil prices and inflation that has remained above the Fed's target for half a decade.
Friday's reading on U.S. consumer prices (CPI) showed headline prices increased another 0.4% in August, as expected, while core prices, which exclude food and energy, rose 0.3%, above the 0.2% increase economists expected. On a year-over-year basis, headline CPI increased 3.4%, while core CPI rose 2.4%. The report followed Thursday's producer price data, which showed core PPI increasing at a 4.6% annual rate in August. PPI can provide insight into future inflation trends, as producers often look to pass higher costs on to consumers. Much of this year's core PPI pressure has come from energy-related passthroughs in categories such as airfares. With oil prices continuing to climb and diesel prices setting new records almost daily, those pressures could persist for some time.
This week's news that the U.S. destroyed five Iranian oil tankers in retaliation for a missile fired at a U.S. warship pushed energy prices higher and contributed to another increase in Treasury yields. Brent crude touched $107 per barrel, while WTI rose to $102 on Thursday. That move, combined with the President's pledge to send $5,000 payments to every U.S. adult if Republicans maintain control of both chambers of Congress following the upcoming elections, led to an increase in market-based inflation expectations. One-year TIPS breakevens rose to 2.55%, while five-year inflation expectations climbed to 2.47% on Thursday. Both measures reached their highest levels since early June, before the U.S. and Iran signed a memorandum of understanding that, with the benefit of hindsight, appears to have only temporarily cooled tensions in the region.
The Fed begins its two-day meeting next week, and given this week's news suggesting inflation is making little progress toward the Fed's goal amid soaring energy costs tied to the conflict with Iran, tariffs, and ongoing data center construction, it's difficult to see policymakers holding rates steady on Wednesday. As we've mentioned before, Chairman Warsh has been reluctant to tip his hand, but in a speech last month he said the Fed would still have "work to do" if inflation failed to cool at a "sufficient speed."
Two-year Treasury yields, often viewed as a proxy for the market's expectation of the average fed funds rate over the next two years, rose to 4.61% this week, their highest level since July 2024. The spread between the two-year Treasury yield and the fed funds rate widened to 86 basis points, its largest since 2022, suggesting the Fed may be falling behind the curve. Futures markets now assign roughly a 90% probability to a rate hike next week, with nearly two full rate hikes priced in by year-end.
As of September 11, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.23% |
2.21% |
.02% |
2.60% |
-.37% |
|
Taxable MMF |
3.68% |
3.68% |
.00% |
4.29% |
-.61% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.62% |
4.37% |
.25% |
3.54% |
1.07% |
|
5-Year Treasury |
4.76% |
4.55% |
.21% |
3.60% |
1.16% |
|
10-Year Treasury |
4.95% |
4.78% |
.16% |
4.02% |
.92% |
|
30-Year Treasury |
5.34% |
5.24% |
.10% |
4.65% |
.69% |
|
5-Year Exp. Inflation |
2.42% |
2.38% |
.03% |
2.44% |
-.02% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.87% |
2.66% |
.21% |
2.16% |
.71% |
|
5-Year Municipal** |
3.28% |
3.05% |
.23% |
2.34% |
.94% |
|
10-Year Municipal** |
3.86% |
3.63% |
.23% |
3.13% |
.74% |
|
30-Year Municipal** |
5.06% |
4.90% |
.17% |
4.47% |
.60% |
|
|
|
|
|
|
|
|
Fed Funds |
3.75% |
3.75% |
.00% |
4.50% |
-.75% |
|
Prime Rate |
6.75% |
6.75% |
.00% |
7.50% |
-.75% |
|
Dollar*** |
$99.12 |
$99.18 |
-$0.06 |
$97.53 |
$1.58 |
|
CRB |
$429.15 |
$416.41 |
$12.74 |
$300.32 |
$128.83 |
|
Gold |
$4,370.60 |
$4,441.90 |
-$71.30 |
$3,645.00 |
$725.60 |
|
Crude Oil |
$100.07 |
$91.48 |
$8.59 |
$62.37 |
$37.70 |
|
Unleaded Gasoline**** |
$3.34 |
$3.21 |
$0.12 |
$1.84 |
$1.50 |
* 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
The challenging market performance backdrop September has historically provided reasserted itself this week, as both higher oil prices, and higher US Treasury yields pressured US equities. Escalating Middle East tensions lifted crude prices, revived inflation concerns, and ultimately weighed on major US indices for much of the week. Although Friday’s August core Consumer Price Index (CPI) reading came in slightly above consensus, US equities managed to rebound off weekly lows as oil prices eased from recent highs. Even with Friday’s morning gains of more than 1%, major indices remained on pace for a modest weekly decline ahead of next week’s Federal Reserve (Fed) meeting.
The week’s dominant macro story was renewed upside pressure in both crude oil and US Treasury yields. The US and Iran continued exchanging strikes over the long holiday weekend, while increased activity from Iran-aligned Houthi forces and continued threats of further escalation was a reminder the conflict seemingly remains far from resolved. In response, West Texas Intermediate crude rose for eight consecutive sessions through Thursday, jumping back above $100/barrel. Higher energy prices fed directly into inflation concerns, pushing Treasury yields higher as investors reevaluated the path of monetary policy and economic growth. The 10-year US Treasury yield flirted with 5% before easing to roughly 4.95% Friday morning, levels last seen in October 2023. Of note, an updated Treasury buyback announcement from the Treasury department did not impact bond yields, as there were expectations a higher buyback figure would be announced. A key investor concern remains that persistently higher energy prices and higher interest rates could lead to a meaningful drag on global growth expectations.
Inflation updates were also a key focal point for investors this week. Although Thursday’s August core Producer Price Index (PPI) reading was softer than consensus, it provided limited support for equities as higher oil prices continued to weigh on sentiment. Friday’s core CPI report was hotter than expected, rising 0.3% month over month versus expectations for a 0.2% increase. The report pushed implied odds of a Fed rate hike next week to 86.3% per the CME FedWatch Tool, up from 72.4% one day earlier and 59.4% one week earlier. The recent sharp repricing has left the market increasingly positioned for a Fed hike next week, making a Fed hold a potential surprise based upon current market probabilities. Regardless of the hotter August core CPI reading, US equities rebounded on Friday, supported by a move lower in oil prices.
Despite macro headwinds, the US equity market has remained relatively resilient. As of Friday morning, the S&P 500 was only ~1.7% below its August 13th all-time high close of 7,798.99. That limited drawdown suggests investors continue to look through macro pressures, supported by solid earnings growth expectations. Next week’s Fed meeting could shape the near-term returns for US equities, with the direction potentially dependent upon whether market takeaways lean dovish or hawkish. For investors, this week was a reminder of the market’s sensitivity to changes in energy prices, bond yields, and monetary policy expectations.
As of September 10, 2026
|
Index |
Current Week |
Month of Sep. |
YTD |
|
Dow Jones Industrial Avg. |
-2.51% |
-1.98% |
9.57% |
|
S&P 500 |
-1.63% |
-1.18% |
11.80% |
|
Nasdaq |
-1.59% |
-1.06% |
12.69% |
|
MSCI EAFE |
-1.43% |
-1.19% |
12.88% |
|
Russell Mid Cap |
-2.58% |
-2.46% |
13.84% |
|
Russell 2000 |
-2.83% |
-2.16% |
17.42% |
