US Treasuries Rebound Post-Fed as Oil Eases From Four-Year Highs

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(Bloomberg) — US Treasuries gained as Brent crude prices retreated from a four-year high, though simmering inflation fears kept yields near their recent peaks.  

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The two-year note outperformed, sending the yield five basis points lower to 3.90%. It had surged some 11 basis points on Wednesday, after a deeply divided Federal Reserve decision increased uncertainty over the outlook for policy. 

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US 30-year yields traded at 4.98%, having breached 5% earlier in the session, the highest level since July 2025. That move higher came as crude prices surpassed $126 a barrel, before slipping back to $116.

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Investors and policymakers are wrangling with persistent inflation concerns, amid potential for fresh escalation in the Middle East. The Fed left interest rates unchanged on Wednesday but an objection from several policymakers on the post-meeting statement — that suggested the central bank would eventually resume lowering rates — highlighted how the Iran war is complicating the economic outlook.

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“It remains difficult to make a convincing case for rate cuts,” said Christophe Boucher, chief investment officer at ABN AMRO Investment Solutions, adding that the US economy remains resilient. “The Fed is likely to remain in a status quo for a large part of the year.”

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Markets flipped from pricing US policy easing to betting on hikes, at one point seeing a 50% chance that the Fed raises rates by a quarter-point by early next year. That’s a turnaround from the start of the week when traders had expected a roughly 40% chance of a quarter-point cut in 2026. 

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The next jolt could come from US PCE inflation data for March later Thursday, alongside personal income and spending data, weekly jobless claims, and growth data for the first quarter.

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For bond investors, the 5% yield level on the 30-year carries special importance, with some viewing it as a “line in the sand” for the market. While it was breached in 2023 and again in 2025, such moves have failed to last more than a few trading sessions. A more persistent break above 5% would herald a trading range not seen in almost two decades.

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The oil price surge unleashed by the Middle East conflict has weighed on bonds globally, alongside lingering angst around how increased defense spending will impact longer-dated bonds. Before the start of the war, traders were pricing in more than two reductions by the Fed this year, with some expecting Kevin Warsh — on track to become the next chair — to support the resumption of policy easing. 

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Wednesday’s Fed decision is not one “that clears the path for near‑term easing,” said Daniel Siluk, portfolio manager at Janus Henderson Investors. It “suggests a Federal Reserve that is patient, cautious, and increasingly sensitive to inflation shocks, particularly those tied to energy and geopolitics.”

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