News of the week summary - 29/03/2026

Government bonds sold off sharply across the developed world

The defining market story of the week was a simultaneous and substantial sell-off in government bonds across all major economies. In the United States, the yield on the 10-year Treasury note closed Friday at 4.44 percent, an eight-month high, after the 2-year note briefly touched 4.0 percent for the first time since June 2025. In Germany, the 10-year Bund reached 3.10 percent, the highest level since mid-2011 at the height of the eurozone debt crisis. French government bond yields approached 17-year highs. UK 10-year gilts reached 5.07 percent, the highest level since 2008. In every case, shorter-dated yields rose faster than longer-dated ones, a pattern analysts described as a bear-flattening of yield curves: when short rates rise faster than long rates, it typically signals that investors expect central banks to tighten policy sharply in the near term, even if the long-term economic outlook is weaker.

The mechanism was straightforward. Oil above $100 per barrel was feeding directly into inflation expectations. When energy is expensive, virtually everything that requires energy to produce, transport or operate also becomes more expensive. Markets had entered 2026 expecting the Federal Reserve to cut rates twice before year-end; by late March, futures pricing pointed to no cuts and a roughly 22 percent probability of a rate hike. Markets were pricing three quarter-point increases from the European Central Bank and from the Bank of England before the end of 2026. The repricing in European rates carried particular force after ECB President Christine Lagarde stated on Thursday that the bank stood ready to raise borrowing costs even if the inflation spike from the war proved short-lived. German Bund yields had risen 36 basis points over the course of March alone.

The wider significance of the bond market move extended beyond the immediate repricing of rate expectations. Rising yields affect the cost of borrowing for households, businesses and governments. They reduce the present value of equity earnings, putting downward pressure on stocks. And they tighten financial conditions globally, making it more expensive to service debt in currencies tied to the dollar or the euro. The sell-off was being described as the most disruptive multi-week move in developed-market bond markets since the inflation shock of 2022.

Oil gyrates as diplomatic signals move markets

On Monday morning, an announcement that further strikes on Iranian energy infrastructure would be paused while diplomatic discussions took place sent oil prices down roughly 10 percent within the space of an hour. US crude fell briefly below $90 per barrel. European equity markets surged 1.5 to 3.5 percent in early trading. Bond yields moved lower as investors bought into the prospect that the energy shock might be approaching its peak.

By the end of the day, the moves had partially reversed. Iran's government disputed the characterisation of a diplomatic breakthrough, describing the pause as a unilateral decision rather than the result of any agreement. The Strait of Hormuz remained closed. The ceasefire did not materialise that week. Oil recovered toward $100-$110 as the week progressed. The pattern illustrated something that would recur throughout the conflict: large and immediate market reactions to diplomatic headlines, followed by partial reversals as the physical reality reasserted itself. No diplomatic signal, however encouraging in isolation, changed the fact that no oil was flowing through the strait, and that every day of closure meant deeper drawdowns in global inventories and more upward pressure on prices.

What the week's oil market activity confirmed was the scale of the underlying disruption. Brent crude had risen approximately 55 percent since the conflict began on February 28, from around $72 per barrel to a range of $100-$115. US retail gasoline prices averaged $3.96 per gallon on the Monday of this week, a gain of more than $1 in a single month and the fastest one-month rise since Hurricane Katrina in 2005. The IEA had described the closure of the Strait of Hormuz as the largest supply disruption in the history of the global oil market. With Gulf producers having cut output by at least 10 million barrels per day from pre-war levels, and the prospect of a rapid resumption of flows still uncertain, the energy shock had no clear exit in sight.

Consumer sentiment fell as the war arrived at the filling station

On Friday, the final reading of the University of Michigan's Consumer Sentiment Index for March fell to 53.3, down from 56.6 in February and below the preliminary reading of 55.5 published two weeks earlier. The decline reflected an important difference between the two readings: the preliminary survey was conducted largely before the war began, capturing responses from the prior three weeks. The final survey extended through March 23, with roughly two-thirds of responses collected after the conflict started. As more households experienced the actual effect of the energy shock at the pump, their assessments of both current conditions and future expectations deteriorated.

Year-ahead inflation expectations jumped from 3.4 percent in February to 3.8 percent in March, the largest single-month increase since April 2025. Expectations for prices over the next five to ten years, the measure the Federal Reserve monitors most closely as a signal of whether inflation is becoming embedded, edged up from 3.2 percent to 3.2 percent, holding within the elevated range that has characterised the post-pandemic period but not yet accelerating. The sentiment reading was the first decline after three consecutive monthly increases, and it arrived as US petrol prices were rising for the 23rd consecutive day.

The pattern within the data was revealing: higher-income consumers, who do not typically lead confidence surveys lower, were among those reporting sharper falls in sentiment this month. That suggested the decline was being driven not by job-market fears, where the data remained relatively stable, but by the direct salience of energy prices. Every consumer, regardless of income, passes a filling station and sees the price posted on the sign. When that price rises more than 30 percent in a month, the psychological effect on household confidence is immediate and broad-based.

Import prices confirmed the shock was spreading beyond energy

Earlier in the week, the Bureau of Labor Statistics had published the US import price index for February, released on the 25th. Import prices rose 1.3 percent in the month, the largest monthly increase since March 2022. The headline was dominated by a 3.8 percent rise in fuel import prices, reflecting the surge in global energy costs. But the more significant signal for the inflation outlook was in the non-fuel categories: capital goods prices rose, industrial supplies excluding fuel moved higher, and consumer goods prices outside of automobiles also increased.

The significance of non-fuel import price increases is that they tend to feed into consumer prices with a lag of several months, as businesses work through their existing contracts and inventories before repricing. Energy shocks that stay confined to the energy category are relatively straightforward for central banks to look through: they raise headline inflation temporarily, but if they do not spill into wages and services, the underlying price trend stays manageable. What the February import data suggested was that the shock was already beginning to spread, with non-energy costs also rising before the war had even been fully reflected in the supply chain. If that dynamic continued into March and April, the Fed's argument for looking through the energy spike would become progressively harder to sustain.