Insights

US Treasuries 

• The 10-year Treasury yield is currently 4.34%, no change since last Monday morning. But that’s not to say that it hasn’t been a choppy bond market. 10-year bonds traded in a 16-basis point range (4.26% - 4.42%). Pre-Iran war, the 10-year stood at 3.93% (as of 3/2); we’re 41 basis points higher now.  

• 2-year Treasuries are at 3.85% this morning, 2 basis point higher since last Monday.  Pre-Iran war, the 2-year stood at 3.40% (as of 3/2); now 45 basis points higher.  

Trading Recap - 10‑year Treasury yields moved to the low end of the range Wednesday morning with some optimism after President Trump suggested potential off‑ramps to the Iran conflict that would not require reopening the Strait of Hormuz (and that it would “happen naturally”). That momentum faded following the President’s speech Wednesday night, which failed to ease concerns that the conflict could be prolonged. As a result, 10‑year yields rose roughly 6 basis points Wednesday night into Thursday morning, reaching 4.38%, before moderating later Thursday. On Friday morning, a stronger‑than‑expected jobs report showing +178k payroll gains pushed yields sharply higher, with rates jumping 5–6 basis points across the curve.  Yields ticked 1-2 basis points higher early this morning as markets digested President Trump’s Sunday social media threat to target Iran’s power plants and bridges beginning Tuesday at 8:00 PM, as US allies are pressing both sides for a last minute deal. 

Last Week’s Economic Data (Selected Highlights) 

The Iran war continued to dominate the focus of the asset markets even though we had some substantive data presenting a relatively healthy labor market. 

• US Employment Report (March):   Nonfarm payroll grew +178,000 new jobs versus 65k forecasted.  Third month in a row where the employment report was extreme – recall: January’s employment was +16ok, above expectations, February’s showed -92k job-losses (and revised even lower to -133k).  The 3-month average is now +68k per month. The unemployment rate moved back to 4.3%, +1/10^th lower.    

• Challenger Job Cuts (March): According to outplacement firm Challenger, Gray & Christmas, employers reported 60,620 job cuts in March versus 48.3k job cuts in February, and January’s print at 108.4k. 

• ADP Employment Report (March): ADP reported +62,000 net new jobs for March, versus the forecast at +40k and February’s print at +66k, as revised. 

• JOLTS Job Openings Report (Feb): JOLTS Job Openings printed at 6.882 million, a significant downturn versus 7.240 million in January, as revised.  

• Weekly Initial Jobless Claims: Unemployment claims for the week ended 3/28 printed at a subdued 202,000, versus 211k the previous week, as revised.  and below the pre-announcement forecast (212k). The 4-week moving average is 207.75k.  Arguably, jobless claims are subdued and consistent with a low hire, low fire labor market.   

• Retail Sales (Feb): Retail sales rebounded substantially in February after weather-depressed January results. Overall retail sales increased in February by 0.6%, while the ex-motor vehicle component advanced by 0.5%, in both cases close to my expectations and modestly ahead of consensus. While the February results are encouraging, they predate the Iran conflict and the spike in gasoline prices. 

• ISM Manufacturing Survey (March): ISM Manufacturing Survey printed at 52.7, marginally higher versus last month (52.4) and the best reading since 2022 and the third straight monthly figure above 52.  Looking under the hood, the tone of the report was less positive; 64% of comments overall were negative, citing tariffs and the Iran war. 

Fed Monetary Policy  

The employment data on Friday was strong. When combined with recent inflation prints running at or above 3% (along with the inflation push likely to come with higher crude oil prices), the Fed is likely to continue to remain on-hold with any additional rate cuts.  The Fed Funds target range is currently at 3.50% - 3.75% after the most recent rate cut in December.   As implied from the shape of the yield curve and Fed Funds futures, the bond market isn’t expecting any additional rate cuts until late into 2027.  

My Take on Longer Term Yields 

Crude oil prices have moved another notch higher this past week, as the Strait of Hormuz remains closed and the prospects are that the war will escalate before a settlement can occur. As I see it, the Iran war can’t end unless crude oil shipments resume and Iran relinquishes its uranium stockpile.  

I’m expecting 10-year Treasury yields to move to 4.50% or higher assuming we see another few weeks of heavy conflict in Iran and further disruption to crude oil supply (as well as natural gas, fertilizer and food).  Certainly, an alternative narrative can take hold as well, if real progress to end the war is achieved.  

This Coming Week’s Economic Data  

This week we get some new data on inflation, including the NY Fed survey of expectations for inflation over the next year (Tues), February PCE price index (Thurs), March CPI (Fri).  We will also see the meeting minutes from the March 18^th FOMC meeting, Q4 GDP (3^rd read) and University of Michigan Consumer Sentiment and 1 year and 5-10 year inflation expectations 

The information provided in this article, including, without limitation, any opinions, predictions, forecasts, commentaries or suggestions, is for informational purposes only and should not be construed to be professional or personal investment, financial, legal, tax or other advice.