Since late February, yields have risen sharply across the curve, but not evenly. The biggest moves have been in the intermediate range. The 3Y is up ~81 bps and the 2Y up ~80 bps. Meanwhile, the short end (1M) actually fell 6 bps, and the long end (30Y) rose only 28 bps.
This isn't a typical geopolitical flight to safety trade. Normally in a crisis, treasuries rally as investors seek shelter. Instead, the Strait of Hormuz closure disrupted global oil supply, sending energy prices surging and forcing markets to reprice Fed rate cut expectations entirely.
The shape of the move tells the real story: intermediate maturities are bearing the brunt of inflation repricing, while the long end stays anchored by growth concerns and the front end reflects where the Fed actually sits today.
As Charles Schwab's fixed income team notes, very short-term yields have been largely unchanged while maturities of one year or more have risen by varying degrees. A dynamic that tightens financial conditions by raising borrowing costs without the Fed needing to lift a finger.
The bond market remains one of the most honest real-time reads on where this conflict is headed.
Sources: Charles Schwab, CNBC
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