Macro Horizons Second Quarter Quagmire
Apr 2, 2026
Discussion of how Middle East headlines shifted markets from inflation to growth worries. Exploration of political rhetoric and volatility driving Treasury yield moves. Examination of Gulf damage risks lifting energy prices and complicating the inflation versus growth trade-off. Preview of key upcoming data, Fed timing scenarios, and Treasury auctions.
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Market Shift From Inflation To Growth Risk
- Market moves shifted from an inflation-first reaction to growth concerns after 10-year yields peaked near 4.48% and then rallied back toward ~4.25%.
- Ian Lyngen highlights that headlines about Iran refocused investors on growth and the Strait of Hormuz rather than only inflationary risks.
Curve Held At A 50 Basis Point Two Ten
- Treasury curve flattened as futures moved to price lower Fed funds by year-end while two/ten remained ~50bp, driven by front-end bids.
- Ben Jeffery notes markets priced out a 2026 hike and pushed front-end yields down amid volatility over Iran.
Energy Shock Sequencing To Inflation And Growth
- Higher energy prices from damage in the Persian Gulf are likely to rebase oil at a permanently higher plateau, first lifting market-based inflation expectations.
- Ben Jeffery maps sequencing: market inflation expectations, then headline inflation, then core goods and consumption-tax effects over months.