Global Monthly Fixed Income Report - April, 2026
US Treasuries
The United States economy is currently navigating a treacherous dual-mandate dilemma exacerbated by the global energy shock. Headline inflation re-accelerated to 3.3% year-over-year in March, propelled almost entirely by a devastating 21% month-over-month spike in gasoline prices. Simultaneously, the labour market is exhibiting structural fracturing; while headline payroll prints present a facade of resilience, long-term unemployment is steadily and persistently expanding. The Federal Reserve is now trapped between the stagflationary forces of an exogenous energy shock and a slowly deteriorating domestic employment landscape. While 1-year, 3-year, and 5-year consumer inflation expectations have currently converged around 3%, they remain
uncomfortably above the central bank's 2% target, presenting an immense risk of unmooring if energy prices continue to bleed into the broader core services sector throughout the second quarter.
The Federal Open Market Committee (FOMC) convened on April 29, 2026, voting to maintain the federal funds target rate at a restrictive 3.50% to 3.75%. However, the superficial stability of this hold masks deep institutional fracturing. The policy decision was accompanied by four dissents—the highest level of committee disunity recorded since October 1992. This fractionalization reflects a fundamental ideological split regarding the interpretation of the energy shock: one faction advocates for pre-emptive rate cuts to support the deteriorating labor market, while the other demands further tightening to crush any nascent secondary inflation spirals.
Compounding this monetary uncertainty is an imminent, highly disruptive leadership transition. Jerome Powell’s tenure as Fed Chair is drawing to a close, with the United States Senate scheduled to confirm Kevin Warsh as his successor prior to the June 2026 FOMC meeting. Warsh has publicly utilized his confirmation hearings to advocate for a complete "regime change" in the conduct of monetary policy. Looking forward to Q2 and beyond, Warsh’s stated preference is to rely heavily on standard interest rate adjustments rather than quantitative balance sheet tools, which he views as disproportionately benefiting financial asset holders. Furthermore, Warsh has indicated that the neutral rate (r-star) likely hovers between 3.00% and 4.00%, implying that current policy is merely at the higher end of neutral rather than deeply restrictive. His intent to dismantle
established forward guidance frameworks in favor of real-time data prioritization will inject immense volatility into short-term rate markets heading into the summer.
The United States Treasury yield curve experienced a pronounced bearish steepening throughout April 2026. The market aggressively digested the dual realities of an energy-driven inflation spike and the incoming Warsh regime, which is heavily perceived as being disruptive to established communication norms.
The bearish steepening observed in April is merely the precursor to the structural normalization of the yield curve under Kevin Warsh’s anticipated framework. The strategy requires a deep underweight position in the 10-year to 30-year nominal Treasury segment. Long-end nominals will continue to suffer severe price degradation as the market fully prices in the persistence of the $114/bbl Brent crude environment and its inevitable transmission into core sticky services
inflation. Portfolios must aggressively execute structural steepener trades (e.g., long the 2-year,short the 10-year). With Warsh explicitly stating his aversion to balance sheet interventions, the artificial suppression of the long end via quantitative easing is definitively over, guaranteeing a higher natural term premium.
