Bond Market - February 26, 2026 (EOD)

 ## Rates Recap Treasury yields moved lower across the curve today, reflecting a risk-off tone amid mixed equity performance and ongoing geopolitical concerns. The 2-year yield, which is most sensitive to Fed policy expectations, declined modestly, signaling a slight easing in near-term rate hike fears. The 10-year yield also fell, though by a smaller magnitude, while the 30-year yield saw the most significant drop, indicating demand for longer-duration safe assets. This dynamic led to a modest steepening of the yield curve, as the spread between the 2-year and 10-year Treasuries widened. The flattening pressure that had dominated in recent weeks eased somewhat, suggesting investors are pricing in a longer path to rate cuts or a more stable terminal rate environment. Key drivers included cautious risk sentiment following mixed earnings reports from major tech firms, ongoing US-Iran nuclear talks, and the dip in mortgage rates below 6%, which has implications for housing demand and consumer spending. Overall, fixed income markets showed a flight-to-quality response, with investors favoring Treasuries amid equity weakness and uncertainty around AI sector earnings. Inflation-protected securities also gained, reflecting persistent inflation concerns despite some signs of easing in core inflation abroad. ## Bond ETF Scorecard - **$TLT** +0.59%: The 20+ year Treasury ETF outperformed, benefiting from the drop in long-term yields and increased demand for duration amid risk aversion. - **$IEF** +0.32%: The 7-10 year Treasury ETF also posted gains, supported by the modest decline in intermediate yields. - **$SHY** +0.06%: The 1-3 year Treasury ETF was relatively flat, consistent with the smaller move in short-term yields. - **$TIP** +0.27%: TIPS edged higher, signaling that inflation expectations remain elevated despite some easing in headline inflation metrics. - **$AGG** +0.16%: The broad Aggregate bond market ETF gained, reflecting the overall Treasury rally and stable investment-grade credit. - **$BND** +0.12%: The total bond market ETF followed suit with modest gains, supported by the Treasury rally and steady credit conditions. ## Credit Market Health High yield ETFs **$HYG** (-0.09%) and **$JNK** (-0.08%) were marginally lower, indicating slight pressure on riskier credit amid equity market weakness and AI sector volatility. Investment grade ETF **$LQD** was flat to slightly positive (+0.06%), showing resilience in higher-quality corporate bonds. Credit spreads showed little movement overall, remaining relatively stable with no significant widening or tightening. Corporate bond issuance and demand data were not notable today, suggesting a steady credit market environment without major shifts in risk appetite. ## Rate-Sensitive Equities Real estate sector ETF **$XLRE** gained +0.43%, benefiting from lower long-term yields and improved mortgage affordability as mortgage rates dipped below 6%. Utilities ETF **$XLU** declined -0.46%, likely pressured by mixed earnings and sector rotation dynamics despite the yield drop. Bank stocks such as **$JPM**, **$GS**, and **$BAC** showed data not available for precise moves, but overall market tone and stable short-term yields suggest limited immediate impact on net interest margins (NIM). The US dollar ETF **$UUP** was flat (+0.07%), while gold ETF **$GLD** rose +0.55%, reflecting safe-haven demand amid equity volatility and geopolitical uncertainties. Growth stocks underperformed value, with the Nasdaq 100 ETF **$QQQ** down -1.54% versus the S&P 500 **$SPY** down -0.96%, consistent with a rotation away from high-beta tech amid AI sector concerns. ## Tomorrow's Setup - February US CPI and PCE inflation data are scheduled, key for Fed policy outlook. - Treasury auctions include 3-year notes, which will test demand amid recent yield volatility. - Fed speakers are expected, potentially providing further clarity on rate path and economic outlook. - Watch key yield levels: 10-year Treasury near 3.85% and 30-year near 3.95% for technical support/resistance. - Positioning likely cautious ahead of inflation data, with investors balancing risk-off trades and inflation hedges.