September 25, 2026
Financial markets repriced the outlook for interest rates this week as incoming data pointed to continued economic momentum and persistent inflation pressures. Treasury yields rose sharply across the curve this week, from 3-month bills to the 30-year bond, with the 5-year trading above 5% and the 10-year posting its largest weekly gain since at least May. Several factors contributed to the move, including S&P Global flash composite PMI, which climbed to 58.4 in September from 56.0, well above economists’ expectations of 55.3. Output grew at the fastest pace in more than five years and input costs at the steepest rate since 2022. Yields turned higher after the report was released on Wednesday with the 10-year closing above 5% for the first time since October 2023.
Economic data continued to point to resilient underlying demand despite higher interest rates and rising costs. Orders for core capital goods, a key measure of business investment, rose 1.6% in August versus expectation of 0.5% supported by continued investment on AI infrastructure. New home sales jumped 6.4% in August to an annual pace of 684,000, in line with pre-pandemic levels. Businesses are spending more on equipment despite rising costs, underscoring that inflationary pressures reflect strong demand, not solely higher energy prices. In contrast, consumer sentiment remained weak with final University of Michigan sentiment falling to 48.1, while one-year inflation expectations held at 4.6%.
Economic growth was the primary driver of higher yields, with longer-term Treasury yields leading the move. As of this morning, the 2-year Treasury yield is approximately 4.86%, up roughly 15 basis points, on the week, while the 10-year is near 5.17%, up about 17 basis points. The 2-year/10-year spread widened to 31 basis points from 25. The S&P 500 rose regardless, up about 1.0% to 7,728. West Texas Intermediate crude eased to approximately $92.73 a barrel, as reported U.S.-Iran talks outweighed Houthi attacks on Saudi Arabia. Gold declined approximately 2% to $4,293 an ounce.
The Chandler team anticipates additional monetary policy tightening in the coming meetings. Persistent cost pressures, elevated inflation expectations, and resilient demand continue to support this view, although weak consumer sentiment remains a risk to the outlook. Next week’s inflation and labor market reports will help set the tone for the Federal Reserve’s October 27–28 meeting. The Chandler team continues to manage client portfolios with an emphasis on safety via high credit quality, ample liquidity, and disciplined duration management.
Next Week: S&P Cotality Case-Shiller 20-City Composite Home Price Index, Conference Board Consumer Confidence, Job Openings & Labor Turnover Survey (JOLTS), Gross Domestic Product (GDP), Personal Consumption Expenditures (PCE), ISM Manufacturing, Nonfarm Payrolls, and Unemployment Rate
Written by Kara Hooks, CTP, Portfolio Strategist