(Bloomberg) -- US Treasuries are ending the week lower as oil prices rise above $100 a barrel, stoking concern about inflation that will keep the Federal Reserve from lowering interest rates anytime soon.
Most US government debt was lower in midday trading on Friday, pushing yields on 30-year bonds up three basis points to 4.91% — the highest since early February. Interest-rate swaps tied to the Fed's policy meeting dates showed about 21 basis points of easing priced for this year, compared to 18 basis points seen late on Thursday.
Traders are now fully pricing in the next quarter-point rate reduction in mid-2027, and a growing chorus of Wall Street economists — including TD Securities, Barclays Plc and Goldman Sachs & Co. — have also pushed their calls for the next cut further out the calendar.
The latest moves leave the $31 trillion bond market on course for steep weekly losses driven by mounting concern that war in the Middle East will ignite inflation and keep the Fed on hold for longer. A sustained rise in yields since the US attacked Iran on Feb. 28 has already nearly erased the Treasury market's gain for the year.
"The rates market has been focused on the inflation shock posed by the war over the last two weeks, and the curve has significantly bear flattened," said Priya Misra, portfolio manager at JPMorgan Asset Management. The firm has increased its interest-rate exposure in portfolios as rates have backed up because "we think that a geopolitical shock is more a stagflationary shock."
The two-year yield remains 16 basis points higher than it was a week ago after a wave of selling convulsed the market and oil soared. Longer-dated yields were also higher at the end of the week, with 30-year yields up 15 basis points to 4.91% on the week. A heavy slate of corporate issuance, plus a trio of Treasury auctions this week, added to the pressure.
Brent crude futures advanced again at the end of the week, moving above $100 — far higher than the $70-per-barrel area they traded in late last month. As concern about inflation rises, the challenge for bond investors is that oil prices may need to rise a lot further before tipping the scales from inflation worries to one of a bigger hit to economic activity that would prompt Fed easing. Oil price shocks in prior decades have ultimately helped drive the US economy into recession, as seen in 1974, 1981, 1990, 2001 and 2008.
On Friday, economic data showed US consumer spending barely ticked higher in January and growth that was weaker than previously reported for the fourth quarter of 2025. The so-called core personal consumption expenditures price index, which excludes food and energy items and is favored by the Fed, rose a firm 0.4%. US consumer sentiment also declined to a three-month low. Two-year yields were little changed on the session around 3.73% after earlier falling.
The figures, taken together with the inflationary risks tied to war in the Middle East, have investors weighing the path for rates as the Fed is forced to reckon with price pressures — and pressure from President Donald Trump for cuts.
Before this week's spike in oil prices, the market had been fully pricing in one or more quarter-point cut — and as recently as late February, traders had fully priced in at least 50 basis points of easing. Now, the next fully priced-in rate cut is seen next year.
Economists at both TD and Barclays shifted their forecasts for the next Fed cut in September from June, while ING acknowledged the risk that reductions are delayed into 2027. Earlier this week, Goldman Sachs economists also scrapped their call for a Fed rate cut in June based on "a higher inflation path." They now predict cuts in September and December, versus June and September.
Those shifting expectations ramp up the temperature around the central bank's meeting next week, with all eyes on how Chair Jerome Powell defines the oil price shock and last month's negative jobs report. The Fed is widely expected to leave rates steady in March.
"How Powell frames this narrative in the press conference is really important, and we could have a lot more potential volatility than before," said John Briggs, head of US rates strategy at Natixis North America.
--With assistance from Edward Bolingbroke.
(Recasts to reflect weekly moves.)
More stories like this are available on bloomberg.com
