NEW YORK, March 26, 2026, 07:17 EDT
- U.S. Treasury yields edged higher Thursday, snapping back after just a brief pullback. Uncertainty over U.S.-Iran signals sent shudders through the market, while oil shot up past $105 a barrel.
- Households are feeling it now: last week, the average 30-year U.S. mortgage rate climbed by 13 basis points to 6.43%, marking a high not seen since October.
- Traders have priced out a Federal Reserve rate cut for this year, with CME’s FedWatch tool showing barely any odds for a December cut and about a 38% probability of a rate hike instead.
U.S. Treasury yields climbed Thursday, snapping back from a brief dip just a day earlier. Mixed signals out of Washington and Tehran muddied the ceasefire outlook, sending oil past $105 a barrel again. That shift unwound some of Wednesday’s bond rally, when fleeting optimism about diplomacy had eased inflation jitters.
The impact stretches far past Wall Street itself. Treasury yields influence everything from mortgages to corporate loans. The average 30-year fixed mortgage rate in the U.S. jumped 13 basis points to 6.43% this week, marking its highest point since October. Mortgage applications dropped 10.5%, reaching lows not seen since January.
The shift comes as interest rate bets have been upended. Traders are now ruling out any Fed rate cuts this year entirely, according to money market pricing. CME’s FedWatch tool most recently put the odds of a December cut at just 3%, while chances for a hike have jumped to about 38%—a dramatic reversal from forecasts calling for a pair of cuts before the Iran tensions escalated.
Wednesday brought a quick breather. Yields dropped two to four basis points along the curve after the White House confirmed ongoing peace talks with Iran. By the U.S. close, the 10-year note yield had slipped 7 basis points to 4.32%. Brent finished the session down 2.17% at $102.22 a barrel.
The lull didn’t last. Trump claimed Iran was eager for a deal, but Iranian Foreign Minister Abbas Araqchi countered that no talks or negotiations had taken place—just messages relayed by third parties. The conflict, now about a month old after U.S. and Israeli forces struck Iran in late February, has essentially closed the Strait of Hormuz, the key route for roughly 20% of the world’s oil and LNG supply.
“Investors are trying to price out the war and price in a peace rally ahead of time, but risks remain elevated,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. U.S. stock futures moved lower before the bell. Reuters
The move sent ripples through peer bond markets. Germany’s 10-year Bund — Europe’s bellwether government bond — dropped 5.1 basis points to 2.96% in Wednesday’s relief bounce. But on Thursday, yields pushed higher across German, U.S., and Japanese government debt. Notably, Japan’s two-year yield touched a three-decade high, while ECB President Christine Lagarde kept the option of a cautious rate hike alive if inflationary pressures persist.
Charu Chanana, chief investment strategist at Saxo, put it bluntly: “It looks like the market’s relief trade is starting to wobble.” She added, “One peace rumour does not undo the inflation and rates damage already in the system.” Reuters
Underneath the day-to-day action, the market is showing more strain than top-level moves reflect. The MOVE index—Wall Street’s read on Treasury volatility—has climbed to its highest mark since last May. Morgan Stanley pointed out that bid-ask spreads in two-year notes jumped almost 30% in March, even as trading volumes took off. According to the bank, that signals pressured selling. And Fed custody figures revealed a drop of about $75 billion in foreign official holdings over the past four weeks.
“The faster we get a resolution the better,” said Mark Hackett, chief market strategist at Nationwide Financial, on Wednesday. He cautioned, though, that the market is still “susceptible to whipsaws around the news cycle.” Now traders are zeroed in on Thursday’s $44 billion seven-year note auction. Formal talks, steadier shipping through Hormuz, and solid auction demand would be needed to maintain a real decline in yields. But if the auction disappoints or crude prices jump again, borrowing costs could quickly revisit last week’s highs.
