US Treasuries
- The 10-year Treasury yield is currently 4.41%, 9 basis points higher since last Monday. 10-year bonds traded in a 13-basis point range (4.30% - 4.43%). Pre-Iran war, the 10-year stood at 3.93% (as of 3/2); we’re now 48 basis points higher.
- 2-year Treasuries are at 3.93% this morning, 13 basis points higher since last Monday. Pre-Iran war, the 2-year stood at 3.40% (as of 3/2); now 53 basis points higher.
Trading Recap – The 10-year yield moved about 10 basis points higher on Wednesday following the FOMC statement. The move reflected WTI crude oil moving to $106.88/barrel about 10% higher ($96.37/barrel last Monday). Yields also moved with the growing acknowledgment that future rate cuts are becoming less likely, even with Kevin Warsh set to assume the Fed Chair role on May 15. Three Fed officials dissented from the easing bias in the statement, favoring less dovish and more neutral forward guidance. Yields retracted lower by about 5 basis points on Thursday and Friday, indicating that Wednesday’s sell‑off may have been overdone. WTI Crude also moved back down to $101.94/barrel, Friday’s closing level. The bond market remains focused on the war with Iran, its implications for crude oil prices, and the pass‑through price effects across goods and services.
Last Week’s Economic Data (Selected Highlights)
Last week’s data was not particularly supportive of bonds. PCE inflation printed higher, understandable with higher gas prices. But more notably, Core PCE printed at a 3.2% year-over-year versus 3% as of last month (and 2.61% as of April a year ago), underscoring the view that core inflation continues to build, apart from the recent surge in energy prices. Last Wednesday, Chair Powell pointed to tariff-related passthrough effects as a driver behind the renewed inflationary momentum.
- PCE Price Index (March) – The headline PCE inflation index printed at +0.7% for the month, as forecasted. February’s print was 0.4% for the month. Year-over- year, PCE headline inflation is at 3.5% (versus 2.8% as of the previous month). Core PCE inflation was also 0.3% for the month and printed at 3.2% year-over-year.
- Gross Domestic Product 2026 Q1 Advance read – GDP in the 1st quarter expanded at 2%, versus 0.5% in the 4th quarter of 2025.
- Weekly Initial Jobless Claims: For the week ending April 25th, unemployment claims printed at just 189,000, lower by 26k versus the previous week at 215k as revised. This is the lowest weekly reading since 1969. The 4-week moving average shows just 207.5k, a muted level that is consistent with a solid labor market.
Fed Monetary Policy
Last Wednesday, the FOMC met and left the Fed Funds rate unchanged once again – target range 3.50%-3.75%. While the committee maintained an easing bias in the statement, 3 of the 12 members (Hammack, Kashkari and Logan) wanted to remove the easing bias and one member (Miran, Trump’s appointee) dissented in favor of a rate cut. We are likely to see debate around the hawkish dissents; whether they are signaling to the incoming Fed Chair Warsh that the committee will be slow to pursue further easing, and/or whether they simply are reflecting the prevailing economic conditions - inflation above 3%, a stable labor market, and rising crude oil prices.
The bond market (as implied by the yield curve and Fed Futures prices) is expecting the Fed Funds rate to remain the same through mid-2027.
Exit Jerome Powell (as Chairman) - This was the last FOMC meeting and press conference for Fed Chairman Powell. Powell is expected to be replaced by President Trump’s nominee, Kevin Warsh on May 15th. However, Powell stated at the presser that he will continue to serve as a regular Fed governor to defend the Fed’s independence against the administration’s legal attacks. As widely reported, the DOJ dropped the investigation into the Fed’s renovation project cost overruns a week ago Friday. Powell intends to keep a low profile but remains concerned and will stay on “for a time” to help protect the Fed’s independence.
My Take on Longer Term Yields
Bond yields notched another leg higher this past week moving to 4.43% last Wednesday (after trading in a 15-basis point range around 4.30% average in April). A push to 4.50% on the 10-year Treasury seems likely with crude oil shipments held up in the Strait of Hormuz and a standoff in the Iran war that has both sides unwilling to negotiate in earnest. The US naval blockade is putting pressure on Iran’s economy and therefore the US is unlikely to allow crude oil shipments to resume. Hardliners in Iran are fighting for the survival of their regime and see the control of crude oil shipments in the strait as their main leverage.
Further, we can’t expect the Fed to cut rates any time soon. With employment prints reflecting a stable jobs market, there’s no pressure on the Fed to focus on their full employment mandate. More concerning, inflation seems to have taken on new momentum. Underlying inflation has moved above 3% and crude oil above $100/barrel will likely bleed more widely into goods and services pricing in the months ahead. President Trump just announced another 25% tariff on car imports from Europe adding further fuel to price pressure.
This Coming Week’s Economic Data
“Jobs Week” with JOLTS (job openings) on Tuesday, ADP jobs report on Wednesday, weekly unemployment claims Thursday and on Friday, the highlight - April’s print of the US employment (and the unemployment rate). The March non-farm payroll job gains were strikingly strong (+186k new jobs), the forecast is for April to be about just +75k. The unemployment rate is expected to remain at 4.3%.
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