Treasury Market Recap: 2-year, 5-year, and 10-Year Yields Climbed as Oil Shock and Inflation Fears Outweighed Weak Jobs Data

Treasury market recap: 2-year, 5-year, and 10-year yields climbed as oil shock and inflation fears outweighed weak jobs data

U.S. Treasury yields rose across the curve this past week, with the 2-year, 5-year, and 10-year all finishing above Monday’s levels by Friday, March 6. Using the U.S. Treasury’s daily par yield curve data, the 2-year rose from 3.47% to 3.56%, the 5-year rose from 3.62% to 3.72%, and the 10-year rose from 4.05% to 4.15% over the week. The move was broad-based, with the long end also rising as the 30-year climbed from 4.70% to 4.77%.

The key story was that Treasuries traded less like a classic safe haven and more like an inflation-sensitive asset. The biggest macro shock came from the escalation of the Middle East conflict after the U.S.-Israeli attack on Iran, which drove a sharp jump in oil and gas prices and reignited concern that energy inflation could delay Federal Reserve easing. Reuters described the bond market’s dilemma clearly: geopolitical risk normally supports Treasuries, but an oil shock can do the opposite by lifting inflation expectations.

What happened to the 2-year, 5-year, and 10-year this week

The 2-year yield, which is the most sensitive to Fed expectations, rose from 3.47% on March 2 to 3.56% on March 6, an increase of 9 basis points. The 5-year climbed from 3.62% to 3.72%, up 10 basis points. The 10-year moved from 4.05% to 4.15%, also up 10 basis points. In other words, this was not just a long-end selloff. The move hit the front and intermediate parts of the curve too, suggesting markets were pulling back from earlier expectations for easier Fed policy.

Early in the week, yields rose as markets processed the energy shock and the possibility that higher oil prices could feed into inflation. Reuters reported that crude and gas posted some of their biggest gains in years after the Iran attack, while manufacturing data showed a jump in factory-gate price pressures. That combination was especially important for the 5-year and 10-year, which tend to respond to both growth expectations and inflation risk premia.

The economic numbers that moved rates

The week’s first major economic release was the February ISM Manufacturing PMI, which came in at 52.4, indicating continued expansion. More important for rates, the manufacturing report showed a sharp rise in the prices component, which Reuters said reached its highest level in about three and a half years. That reinforced the idea that tariffs and rising energy costs were beginning to filter into the inflation pipeline.

Midweek, the ISM Services PMI came in even stronger at 56.1, the highest level in more than three and a half years, according to Reuters and ISM. Stronger services activity made it harder for the bond market to lean fully into a recession narrative, even as war headlines kept risk appetite fragile. Strong services plus rising price pressure helped push yields higher into Wednesday and Thursday.

The ADP private payrolls report added another layer of confusion. ADP said private payrolls increased by 63,000 in February, while annual pay growth remained firm at 4.5%. That was not a blockbuster number, but it did not point to an immediate collapse in labor demand either.

Then Friday brought the week’s biggest data surprise: the February jobs report. The Bureau of Labor Statistics said nonfarm payrolls fell by 92,000, and the unemployment rate rose to 4.4%. Ordinarily, a weak jobs report would push Treasury yields lower, especially at the front end. But this week the jobs miss only briefly checked the selloff because the market remained focused on the inflationary implications of war-driven energy prices and trade disruptions. Reuters noted that the weak labor report complicated the Fed outlook rather than cleanly lowering yields.

Why weak jobs did not send yields lower

That was the most interesting part of the week. The labor data argued for lower yields, but the geopolitical backdrop argued for higher yields. Investors were effectively pricing a stagflation risk: softer growth on one side, but higher oil, higher input costs, and firmer inflation pressure on the other. Reuters, the Financial Times, and other market coverage all pointed to the same conclusion: bond investors were worried that the war’s inflation shock could reduce the odds of near-term Fed cuts, even as economic growth looked more fragile.

That dynamic showed up clearly in the week’s curve move. The curve shifted higher almost everywhere from short maturities through the long end, rather than steepening only at the back. The 2-year rose because expected rate cuts were pushed out. The 5-year and 10-year rose because inflation risk and term premium rose with them.

What could move Treasury yields in the coming week

The biggest scheduled U.S. release next week is February CPI on Wednesday, March 11, at 8:30 a.m. Eastern. Because this week’s bond selloff was driven in large part by inflation fears, CPI has an obvious chance to move the 2-year, 5-year, and 10-year sharply. A cooler print could ease some of the pressure on yields. A hotter print would likely reinforce the week’s move higher.

Treasury supply will also matter. TreasuryDirect’s upcoming auction calendar shows a $58 billion 3-year note auction on March 10, a $39 billion 10-year note reopening on March 11, and a $25 billion 30-year bond reopening on March 12. In a volatile rates market, those auctions can become real sentiment tests, especially for the 10-year sector.

Beyond the calendar, the biggest “political” driver remains the Middle East conflict itself. If oil prices continue rising or shipping disruptions worsen, the market may keep demanding a higher inflation premium in Treasuries. Trade policy headlines also still matter, because tariffs and retaliatory measures can affect inflation expectations and growth sentiment at the same time.

Bottom line

This past week, Treasury yields rose because the market treated geopolitics as an inflation problem, not just a growth scare. Even a weak jobs report was not enough to reverse that. The 2-year, 5-year, and 10-year all climbed as investors reassessed the Fed path, inflation risk, and the possibility that higher oil prices could keep policy tighter for longer. Next week’s CPI report and Treasury auctions should tell us whether this was a one-week shock move or the start of a more durable repricing in rates.

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