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Treasury markets experienced their most chaotic week since the banking crisis of 2023, though end-of-week changes understated the turmoil. The 10-year yield's journey from 4.30% to an intraweek low of 4.16% on March 13—as stocks entered correction territory—before rebounding to 4.33% captured the market's inability to find equilibrium. Foreign holdings hit a record $9.05 trillion in March, providing crucial support even as domestic investors fled to cash. The curve's dramatic flattening, with 2-year yields surging 15bp while 30-years actually declined 5bp, signaled growing recession fears despite near-term inflation pressures.

Credit Pulse

Credit markets finally capitulated to reality as investment grade spreads widened 7 basis points to 92bp—still only the 28th percentile historically but the widest levels since December. High yield bore the brunt of selling pressure, surging 18bp to 318bp as the primary market effectively shut down with issuers postponing deals indefinitely. The CDX North American Investment Grade Index experienced its worst week of 2025, widening 6-7bp with March 10's 4.11bp single-day move marking the sharpest deterioration since September 2024. Dispersion exploded as transportation, retail, and commodity-sensitive names underperformed dramatically.

Federal Reserve Policy Outlook

The Federal Reserve finds itself trapped in an increasingly impossible position as the March 18-19 FOMC meeting approaches, with trade war escalation having fundamentally altered the policy calculus. Chair Powell's March 7 acknowledgment that "the path to sustainably returning inflation to our target has been bumpy" now seems quaint compared to the mountain range of volatility markets face. The Committee must somehow craft a message that acknowledges tariff-driven inflation risks without triggering panic about growth, all while maintaining credibility that monetary policy can address supply-side shocks it clearly cannot control.

Market pricing has shifted dramatically, with futures now showing just one rate cut priced for all of 2025, down from three cuts expected just weeks ago. More concerning, the eurodollar curve has begun pricing rate hikes for 2026, suggesting markets believe the Fed may need to combat tariff-driven inflation even at the cost of inducing recession. The updated Summary of Economic Projections on March 19 will likely show sharp upward revisions to inflation forecasts and downward revisions to growth, forcing Powell to explain how the Committee plans to navigate stagflation without the tools to address its root causes. History suggests such attempts at central bank omnipotence rarely end well.

Week Ahead: FOMC Meeting Dominates as Trade Wars Escalate

• FOMC Decision (March 18-19): The most consequential Fed meeting in years as Powell must address trade war implications. Markets expect no change to the 4.25-4.50% rate but focus on dot plot revisions and Powell's characterization of tariff impacts on the dual mandate.
• Housing Starts (March 19): February data expected to show sharp deceleration as 7%+ mortgage rates and tariff-driven material costs crush affordability. Permits will signal whether spring building season is effectively cancelled.
• Existing Home Sales (March 21): Forecast to drop to 3.9 million annual rate, potentially the lowest since 2010 as the housing market freezes. Median prices may show first year-over-year decline since 2012.
• S&P Global PMIs (March 22): March preliminary readings critical for gauging immediate tariff impact. Manufacturing expected to fall below 50 as new orders collapse; services may hold above threshold but margins tell the real story.
• Durable Goods Orders (March 25): February orders likely negative as businesses freeze capital investment amid trade uncertainty. Boeing's production issues add another layer of weakness to already-dire outlook.

US Economic Positioning and Global Context

America's self-inflicted trade war wounds are rapidly metastasizing into a global economic crisis that threatens to unravel decades of carefully constructed international cooperation. The synchronized retaliation by China and Canada this week—targeting $45 billion in US exports—represents just the opening salvo in what threatens to become a 1930s-style trade collapse. Foreign holdings of Treasuries hit $9.05 trillion even as yields proved unstable, highlighting the bizarre dynamic where global investors have no choice but to fund the very policies destroying international commerce.

Dollar dominance faces its greatest test since Bretton Woods: The week's events crystallized the inherent contradiction in Trump's economic agenda: you cannot simultaneously pursue aggressive mercantilism while maintaining reserve currency privileges. China's decision to settle more commodity trades in yuan, Europe's acceleration of digital euro development, and BRICS nations' renewed push for alternative payment systems all reflect growing determination to reduce dollar dependence. For fixed income investors, this tectonic shift implies permanently higher term premiums, reduced foreign demand for Treasuries, and volatile capital flows that amplify market stress. Credit markets' violent repricing this week may prove just a preview of the dislocations ahead as the global financial architecture fragments. The S&P 500's entry into correction territory on March 13—down 10.1% from February highs—suggests equity investors have begun to grasp what bond markets have known for weeks: the benign environment of early 2025 is definitively over, replaced by a new regime of heightened uncertainty, broken correlations, and policy-driven volatility that traditional models cannot capture.