Energy prices and inflation remained the primary drivers of the macro backdrop as the U.S.-Israel-Iran conflict entered its third month, disrupting global oil supply. Headline CPI accelerated at the fastest pace in more than three years, reflecting volatility in the energy component. Crude oil, however, retraced roughly 20% from its May–early June peak as diplomatic progress between the United States and Iran pointed to a potential framework for de-escalation. The labor market remained resilient, with continued payroll growth and subdued jobless claims. Risk assets held firm, as equities hovered near record highs and credit spreads remained historically tight amid broadly better-than-expected corporate earnings. Taken together, the current market environment has further constrained the case for near-term monetary policy easing, leading the Chandler team to push out its expected timing for rate cuts beyond the six-month investment horizon.
The Federal Reserve’s June FOMC meeting ended with policymakers unanimously holding the target range at 3.50%–3.75%, a notable shift from the 8–4 split at April’s meeting, which marked Jerome Powell’s final session as Chair. Under new Chair Kevin Warsh, sworn in on May 22, the Committee released an unusually concise statement that referenced Middle East tensions and energy supply disruptions while removing prior forward guidance that had suggested a bias toward rate cuts. Updated projections leaned more hawkish, with 9 of 18 officials expecting at least one rate hike this year and 6 anticipating multiple increases. The shift signals that restoring price stability has reemerged as the central focus of monetary policy deliberations.
The Treasury yield curve flattened modestly in June as short-term yields responded to a more hawkish shift in Federal Reserve guidance. The 2-year yield rose to 4.18% from 4.01% the prior month, while the 10-year yield was up slightly to 4.47% from 4.44%. As a result, the 2s/10s spread narrowed to 29 basis points, down from roughly 43 basis points a month earlier and significantly below the 69 basis point spread at the start of the year. Meanwhile, the 3-month/10-year spread remained positive at 64 basis points. Front-end rates absorbed the bulk of the Fed’s updated rate outlook, while longer maturities were partly anchored by a late-month decline in oil prices.
As of June 30, 2026, the U.S. Treasury market has navigated intermittent volatility seen earlier in the year, though conditions have stabilized relative to the sharp swings in January. Early-year turbulence—driven by geopolitical tensions and concerns surrounding AI-related exposures in technology and software equities— contributed to elevated rate volatility and sharp moves in the MOVE Index. By quarter-end, the yield curve has instead flattened modestly, reflecting a rise in front-end yields alongside more anchored long-term rates. Ongoing geopolitical risks and policy uncertainty remain potential catalysts for episodic flight-to-quality flows, which could place downward pressure on Treasury yields over the balance of the year.
