Treasury Yields March 2026: Duration Dashboard

The week's market dynamics were dominated by the escalation of the U.S.-Israel military campaign against Iran that began February 28. By Monday's open, the effective closure of the Strait of Hormuz—through which approximately 20% of global oil supply transits—had sent WTI crude from roughly $67 to above $80, with prices reaching $90.90 by Friday's close. The oil shock produced a counterintuitive Treasury response: rather than attracting safe-haven flows, bonds sold off as inflation expectations repriced sharply higher. The 2-year TIPS breakeven rose above 3.0% for the first time since April 2025, while the 10-year breakeven climbed to 2.35%, signaling that energy-driven price pressures are overriding the traditional flight-to-quality impulse.

As we detailed in our March 1 report, the 10-year had just broken below 4% on softening growth expectations. That level was reclaimed decisively this week, with yields rising 20bp to 4.14% in a move that largely reversed the prior month's rally. The speed of the reversal underscores the fragility of the rate-cut narrative when confronted with a supply-side inflation shock.

Iran Oil Shock and Stagflation: Credit Pulse

Credit markets exhibited a quality rotation rather than broad-based stress, with investment grade spreads tightening 4bp to 79bp while high yield widened 4bp to 281bp. The IG compression likely reflects institutional flight-to-quality within credit—money rotating from lower-rated paper toward higher-grade corporates rather than exiting credit entirely. Both IG and HY remain near the lower third of their 5-year ranges (34th and 30th percentiles respectively), indicating that absolute spread levels have not yet adjusted to the new risk environment despite the dramatic increase in equity volatility.

The VIX's move to 29.49—its 94th percentile reading—represents the most significant divergence from credit spreads this year. As we noted following the January FOMC decision, markets had been pricing a benign outlook for credit even as policy uncertainty increased. That complacency is now being tested, though spreads themselves have yet to fully reflect the shift in risk regime.

Federal Reserve Policy Outlook

Federal Reserve officials entered the March 7 blackout period facing the most difficult policy calculus since the 2022 inflation episode. Kansas City Fed President Jeff Schmid delivered the week's most notable remarks on March 3, stating that inflation remains closer to 3% than the Fed's 2% target and warning that the central bank cannot afford to be complacent after nearly five years above target. He noted the economy created only 181,000 jobs in all of 2025—the slowest pace of job growth outside of a recession on record. Vice Chair Bowman's March 3 remarks focused narrowly on bank liquidity regulation rather than monetary policy.

Market pricing for the March 17-18 FOMC meeting shifted materially. The probability of a rate hold rose to 99.7% as traders recognized the Fed's paralysis between competing inflation and employment mandates. Pre-conflict, markets had priced two 25bp cuts in 2026 (June and September). By Friday, cut expectations had narrowed to at most one reduction in December, with the fed funds rate at 3.50-3.75% appearing likely to persist through most of the year. Goldman Sachs formally moved its next cut forecast from June to September. The upcoming FOMC meeting—which includes updated economic projections and dot plots—will provide the first official indication of how the Committee is processing the oil shock and labor market deterioration. As the Conference Board noted, the March meeting is fundamentally about navigating geopolitical risk without losing control of inflation expectations—a far more complex challenge than the rate-cut deliberations markets had anticipated entering the year, and a shift from the easing trajectory we discussed in our February 15 CPI analysis.

Week Ahead: FOMC Meeting Dominates a Heavy Calendar

• CPI Inflation (March 11): February CPI will be the first inflation reading to incorporate early tariff effects and pre-conflict energy pass-through. Core CPI consensus stands at 0.3% month-over-month; any upside surprise would cement the Fed's hawkish positioning heading into the March 18 decision.
• FOMC Meeting (March 17-18): The most closely watched meeting since the 2022 tightening cycle. Updated dot plots and economic projections will reveal whether the Committee is formally pricing stagflation risk. Chair Powell's press conference will be scrutinized for any indication of policy asymmetry between the inflation and employment mandates.
• Retail Sales (March 14): February data becomes a key read on consumer resilience given the oil price increase and weakening labor backdrop. Consensus expects modest softness, but the combination of front-loaded energy costs and deteriorating confidence could deliver a sharper-than-expected pullback.
• 10-Year and 30-Year Treasury Auctions: Demand dynamics at these auctions will be closely watched as a gauge of investor appetite for duration in the new volatility regime. Bid-to-cover ratios and dealer allocations will signal whether foreign and domestic buyers are willing to absorb supply at current yield levels.
• Michigan Consumer Sentiment (March 14): The preliminary March reading will capture the first consumer reaction to both the oil price increase and the negative payrolls print. The inflation expectations component is critical given the visible energy price pass-through at the retail level.

US Economic Positioning and Global Context

The Iran conflict has fundamentally altered the global macro landscape for fixed income investors. The approximately 35% weekly increase in WTI crude—one of the largest single-week moves in oil futures history—has immediate implications for inflation dynamics worldwide, but the effects are distributed unevenly. The United States, as a net energy producer, faces a more modulated impact than pure import-dependent economies, yet the pass-through to consumer prices and inflation expectations is already visible in market-based breakevens and the ISM prices paid data.

The S&P 500 declined approximately 2.0% to around 6,740 for the week, with the Russell 2000 falling 4.1% as small-cap companies faced the most acute margin pressure from rising input costs. Energy was the sole positive sector. The U.S. Dollar Index rose approximately 1.3% on safe-haven demand and the relative advantage of U.S. energy independence, while gold traded near $5,090 per ounce—retreating from a record above $5,400 earlier in the week as rising yields and dollar strength offset geopolitical demand.

For fixed income portfolios, the implications are clear. Duration now carries asymmetric risk in a stagflationary environment: it fails to hedge equity drawdowns when inflation is the dominant driver. Credit selection—particularly the IG versus HY allocation decision—becomes more consequential as the quality rotation evident in this week's spread data may accelerate. The belly of the curve (3-7 years) appears most vulnerable to further repricing given its sensitivity to both policy rate expectations and term premium, while front-end positioning offers relatively limited yield pickup for the optionality of potential cuts. The bond market's 2026 playbook, which was built around a gradual easing cycle, requires substantial revision.