Treasuries Fall as 10-Year Yield Rebounds to 4.08%

Khac Phu Nguyen

Mon, February 23, 2026 at 8:27 PM GMT+9 3 min read

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This article first appeared on GuruFocus.

A powerful rally in US Treasuries may be losing momentum as a series of policy and macro developments begin to reshape investor expectations. After advancing more than 1% earlier this month and tracking toward what would have been the strongest monthly gain since June, the $31 trillion market turned lower last week for the first time in a month. The Supreme Courts decision to strike down President Donald Trumps signature global tariffs threatens, at least for now, to remove a potential source of government revenue tied to deficit financing. At the same time, firmer jobs data and a higher-than-expected inflation reading suggest the bar for additional Federal Reserve rate cuts in the coming months could be higher than investors had anticipated. Minutes from the January policy meeting even showed some officials floating the possibility of tightening if inflation remains stubbornly elevated.

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The shift has rewarded investors who positioned for higher yields as the rally stretched. James Athey, a portfolio manager at Marlborough Investment Management, said he sold 10-year notes when yields approached a two-month low near 4%, close to the lower end of a well-established range. Yields ended the week at 4.08%, still below roughly 4.3% in mid-January but off their recent trough. In the options market, one-month call-put skew in 10-year futures climbed to levels that in recent years have coincided with rally peaks, echoing episodes around last Aprils tariff-driven volatility, the unwind of the carry trade and the regional banking crisis of 2023. Strategists at BNP Paribas described the move as panic-driven and recommended using interest-rate swaps to position for higher 10-year yields, while JPMorgan (NYSE:JPM) advised clients to short two-year notes, arguing that a stable labor market and resilient growth could keep the Fed on hold through 2026. Jay Barry of JPMorgan said the bank does not expect a breakout from the prevailing range, but remains bearish within it.

Still, the backdrop remains balanced. Geopolitical tensions in the Middle East have lifted oil prices and could, if they escalate, revive haven demand for government debt. Blue Owl Capitals decision to restrict withdrawals from one of its private credit funds has also raised concerns about risks beneath the surface of the $1.8 trillion market. On tariffs, the courts ruling widely anticipated in prediction markets could cut the US average effective tariff rate by more than half, implying the Treasury may need to increase debt issuance to bridge funding gaps. Yet the justices did not address importer refunds, and President Trump said he plans to impose a flat 10% levy on foreign goods, later raised to 15%, alongside new trade investigations that could allow for more permanent tariffs. With the 10-year yield largely trading between about 4% and 4.3% since September, investors appear locked in a tug of war. For now, momentum may be tilting toward the bears, though the broader range remains intact.

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