30Y Treasury Yield at 2007 High Pushes Fed Hike Odds to 37% in 2026

The unfolding geopolitical crisis in Iran has detonated inflationThe rate at which prices rise across an economy. expectations in ways that challenge the benign disinflation narrative that dominated early 2026. After President Trump escalated the conflict, oil prices spiked and energy costs surged across the globe, translating into the sharpest inflation pop since 2023. In response, long-durationBond price sensitivity to interest rate changes. bond yields have ratcheted higher; the 30-year Treasury yield hit its highest level since the financial crisis of 2007. Mortgage rates, which track longer-duration debt, have resumed climbing after a brief reprieve, hammering home buyers already priced out of most markets.

The market is rapidly recalibrating its Fed expectations. Traders are now pricing a 37% probability of at least one Fed rate hike in 2026, a sharp reversal from earlier consensus that the central bank would cut rates multiple times this year. This shift reflects a sobering realization: supply shocks, whether from energy, supply-chain disruption, or geopolitical flare-ups, have proven harder for businesses and consumers to tolerate than policymakers hoped. Fed officials like Richmond President Tom Barkin have signaled that the ability to absorb repeated shocks will be the key test of the inflationThe rate at which prices rise across an economy. anchor. If that anchor slips, the Fed will have little choice but to keep rates elevated for longer.

Across the Atlantic, Europe is buckling under the strain. The euro zone will slow markedly while facing the fastest inflationThe rate at which prices rise across an economy. since 2023, according to the European Commission. France is allocating an additional 710 million euros in aid to offset high energy costs. Germany's private-sector activity contracted for a second month. The implication is clear: while the US has energy production and reserve-currency privilege, Europe faces a stagflationary pinch that will weigh on growth and earnings. Bond routs abroad are sharper than in the US; real yields on German bunds have climbed, crimping valuations for growth equities.

The cross-asset impact is broadening. Equity valuations, which price in near-zero real rates, are coming under pressure. Risk-on sentiment, which had driven crypto and meme stocks higher earlier in the year, is reversing; Bitcoin fell below $77,000 and Ethereum dropped 10% amid the bond selloff. Private credit managers are hunting for bargains as troubled assets flood secondary markets. Commodity exporters and energy producers are benefiting, but the broad effect is a repricing of the entire income statement: where inflationThe rate at which prices rise across an economy. crimps margins for importers and consumers, it boosts pricing power for energy firms.