Geopolitical shock drives oil prices and Treasury yields higher

US growth momentum into early 2026 remains solid, supported by stronger consumer cash flows from tax refunds, ongoing AI-related construction, and the lagged impact of late-2025 Fed rate cuts. The outbreak of conflict involving Iran has shifted market focus toward higher oil prices, renewed inflation risk, and the potential for a more cautious Fed, pushing global sovereign yields higher despite earlier signs of easing pressures. While spot crude has jumped and Treasury yields have risen, futures pricing and relatively contained moves in equities and credit suggest investors still expect a limited and temporary disruption.

At the same time, concerns about private credit quality and AI-driven disruption to incumbents are adding an extra layer of uncertainty across risk assets. Against this backdrop of balanced upside growth potential but elevated geopolitical and credit risks, Federated Hermes’ Duration committee has moved to a neutral stance on interest rate exposure while remaining ready to adjust as conditions evolve.