Treasury prices dropped as the market recalibrated around a scenario few wanted to entertain: the Federal Reserve might actually raise rates again. A combination of sticky inflation data and escalating Middle East tensions has pushed investors to price in a 30-60% probability of a 25 basis point hike by year-end or early 2027.

What’s driving the Treasury selloff

Middle East conflict, now spanning nine weeks as of late April 2026, has kept oil prices elevated. Higher energy costs feed directly into inflation expectations, and the data has backed that up. April’s core Producer Price Index came in at a 1% month-over-month increase, the kind of number that makes Fed officials reach for the rate-hike lever.

Ten-year…