US 30-Year Yield at 2007 High With 37% Odds of a 2026 Fed Rate Hike

The bond market is delivering a stark message: long-term inflationThe rate at which prices rise across an economy. and geopolitical risk premiums are not abating. US 30-year yields hit their highest level since 2007, a 15-year high that reflects investor fears about structural inflation, fiscal sustainability, and the durability of the post-pandemic supply-chain normalization narrative. The spike accelerated in tandem with the Iran war's third month, as crude and energy prices remain elevated and shipping costs through the Strait of Hormuz introduce new risk premia.

The spillover into growth expectations is severe and asymmetric. The European Commission revised down euro-zone growth forecasts while flagging the fastest inflationThe rate at which prices rise across an economy. since 2023. France's business activity contracted at the quickest pace since 2020, and the IMF cut its growth forecast for France, citing heightened uncertainty ahead of elections. Germany's private-sector activity shrank for a second consecutive month. Even Saudi Arabia, a major beneficiary of elevated oil prices, saw its growth outlook clouded by global demand concerns. The war is simultaneously a price shock and a demand shock, the worst of both worlds for central banks.

Critically, markets are now pricing a 37% probability of a Fed rate hike in 2026, a pivot that would invert the entire narrative of a dovish Fed pivot. Fed Richmond President Tom Barkin warned that repeated supply shocks test inflationThe rate at which prices rise across an economy. anchors, signaling the central bank remains data-dependent and hawkish by default. JPMorgan CEO Jamie Dimon weighed in with caution on valuations and the sustainability of low rates, while noting that anti-business sentiment in policymaking could hobble growth further.

The feedback loop is reinforcing: higher rates crush housing startsMonthly US new-residential-construction report. Leading indicator for housing market and rate-sensitive economic activity. and mortgage demand (April starts fell markedly), crimping residential capex and consumer real estate equity extraction. Walmart warned rising fuel costs will ripple into consumer pricing. Private credit managers are trading loans at distressed levels to de-risk, suggesting cracks in the credit facade. For AI capex, this creates a funding cost headwind that could force hyperscalers to slow deployment if ROI timelines stretch. The bond market is pricing in a decade of higher-for-longer rates, and equities have not yet fully priced the implications.