Bond Market - February 28, 2026 (Morning)

 ## Rates & Yields Overview Treasury yields have shown a modest decline overnight, with the 20+ year benchmark yield pulling back as reflected in the **$TLT** price rising 0.55% to $90.77. The 7-10 year sector, tracked by **$IEF**, also gained 0.51% to $98.10, while the 1-3 year bucket, represented by **$SHY**, edged up 0.13% to $83.18. This suggests a slight flattening of the yield curve as longer maturities rallied more than short-term notes. The overnight movement in yields appears driven by a combination of geopolitical tensions in the Middle East and softer risk sentiment. The recent U.S.-Israel strikes on Iran have injected risk-off flows into Treasuries, pushing prices higher and yields lower, especially at the long end. Meanwhile, economic data remains mixed, with markets digesting the implications of recent inflation prints and labor market signals on Fed policy. Global investors are also recalibrating positions amid elevated uncertainty, supporting demand for U.S. government debt. Overall, fixed income sentiment is cautiously risk-averse heading into today’s session. Treasury demand is underpinned by safe-haven buying, while uncertainty around the Fed’s next moves and geopolitical risk is keeping yields subdued. Market participants are likely to watch key technical levels and upcoming data releases closely for directional cues. ## Bond Market Movers Pre-market trading shows notable strength in Treasury ETFs. **$TLT** is up 0.55%, reflecting a rally in long-dated Treasuries as investors seek duration amid geopolitical concerns. Similarly, **$IEF** gained 0.51%, signaling demand in the intermediate sector. The short-term ETF **$SHY** rose modestly by 0.13%, indicating less pronounced moves at the front end. Inflation-protected securities, represented by **$TIP**, edged higher by 0.15% to $111.88, suggesting that inflation expectations remain relatively stable despite recent headline volatility. The broad market aggregate bond ETF **$AGG** also advanced 0.20% to $101.40, benefiting from the overall Treasury rally and steady credit conditions. This ETF price action aligns with a risk-off tone, where investors are favoring high-quality, liquid fixed income instruments. The outperformance of longer maturities points to a flight to safety and expectations that geopolitical risks could temper Fed tightening or prompt a pause. ## Credit Spreads & Risk Credit markets are showing signs of mild strain amid the broader risk-off environment. High yield ETFs **$HYG** and **$JNK** declined 0.16% and 0.24%, respectively, underperforming investment grade **$LQD**, which was nearly flat with a slight 0.04% dip. This spread widening in high yield versus investment grade indicates cautious risk appetite among corporate bond investors. The selloff in bank stocks such as **$GS** (-7.48%), **$BAC** (-4.85%), and **$WFC** (-5.80%) reflects concerns about net interest margin pressures and credit quality, which may be weighing on financial credit spreads. No notable new corporate bond issuance was reported pre-market, suggesting issuers may be waiting for more stable conditions. Overall, credit markets remain watchful, with investors balancing fears of economic disruption from AI-driven labor impacts and geopolitical uncertainty against still-solid fundamentals in many sectors. ## Inflation & Data Watch Market attention is focused on the upcoming February Non-Farm Payrolls report, which will be crucial in assessing labor market stability amid recent volatility. Inflation expectations remain anchored, as reflected in the modest rise in **$TIP** prices. Recent producer price data showed some acceleration, adding complexity to the inflation outlook. No major bond auctions are scheduled for today, allowing markets to digest geopolitical developments and positioning ahead of next week’s FOMC meeting. The labor market report will be a key driver for rate expectations, potentially influencing the Fed’s policy path. ## Rate-Sensitive Plays Rate-sensitive sectors are reacting to the lower yield environment. The Real Estate ETF **$XLRE** gained 0.48%, benefiting from the drop in long-term rates which supports REIT valuations. Utilities **$XLU** outperformed with a 1.17% rise, reflecting their status as a yield proxy in a flight-to-quality trade. Bank stocks are under pressure, with **$GS** down 7.48% and **$BAC** down 4.85%, reflecting concerns about net interest margin compression as the yield curve flattens. This dynamic favors defensive sectors and rate-sensitive income plays over financials in the near term. Growth versus value rotation remains cautious, with the Nasdaq 100 ETF **$QQQ** down 0.63% and the S&P 500 ETF **$SPY** down 0.48%, indicating risk aversion. The U.S. dollar ETF **$UUP** was flat, while gold **$GLD** rose 1.31%, underscoring safe-haven demand amid geopolitical tensions. ## What to Watch Today - No major Treasury auctions scheduled; focus remains on geopolitical developments and risk sentiment. - Fed speakers are quiet today, with no scheduled comments adding to the policy outlook. - Key yield levels to monitor include the 10-year Treasury yield around recent lows and the 2-year yield for signs of curve flattening or steepening. - February Non-Farm Payrolls preview highlights labor market stability as a critical factor for rate expectations. - Rate-sensitive equity sectors such as utilities and real estate may continue to outperform amid lower yields and risk-off flows.