Bond Markets Still Fretting Over Possible Fed Rate Hike

Bond markets are now grappling with the rising odds of a rate hike, pricing benchmark two-year note yields some 20 basis points above the effective fed-funds rate, Martin Baccardax reported for Barron’s Daily.

The backdrop is beginning to resemble that of 2022, when Russia’s invasion of Ukraine triggered a surge in global crude prices, inflation pressures prompted a series of Fed rate hikes, and the US economy flirted with recession.

There is also talk of an export levy, or even a complete ban, on US crude exports—a move seen as even more disruptive to global trade than last spring’s sweeping “Liberation Day” tariffs.

Stock markets, meanwhile, are recalibrating for slower growth, fading risk sentiment, and the specter of stagflation, all of which are likely to test Wall Street’s twin assumptions of a sharp market rebound following a short Persian Gulf conflict.

The backdrop is beginning to resemble that of 2022, when Russia’s invasion of Ukraine triggered a surge in global crude prices, inflation pressures prompted a series of Fed rate hikes, and the US economy flirted with recession.

It is a return few are eager to see.