From the Desk of AgFi’s Business Strategist Published 3/20/26 – Recent news has had significant influence on interest rates but not for normal reasons. Typically, economic news drives interest rates as investors evaluate the likely path of economic growth and inflation. However, the markets are now driven almost solely by news out of the Middle East.
In recent days, there have been significant economic reports, but they hold little value given the potential influence of events in the Middle East. In the last two weeks it was reported that new jobs fell by 92,000, that core CPI inflation held constant at 2.5%, year-over-year (YOY), and that core Personal Consumption Expenditures (PCE) slightly increased from 3.0% to 3.1% YOY. Under normal conditions that would have led to the possibility of lower interest rates.
But today the direction of interest rates is almost entirely driven by the flow of oil in the Strait of Hormuz and the possible length and effect of US involvement in Middle East hostilities. In recent weeks, the direction of interest rates has correlated closely with the direction of the price of Brent Crude, the dominant international oil. The question that the market is grappling with is the potential effect on economic growth and inflation if oil flow is restricted for an extended period.
Progressively, traders are raising the price of Brent oil. As can be seen in the 12-month daily chart of Brent Crude below, the trend has been upward without abatement. Prior to the war in Iran Brent Crude held in the range of $60 to $70 per barrel. Recently, it spiked to $119 per barrel and is at $109 this morning.
Along with rising oil prices interest rates have risen. Below you can see the 12-month daily chart of the 10-year Treasury rate, the most important market barometer for mortgage loan rates. You can see that the rate is up to the recent high near 4.30%.
More importantly, the following 12-month daily chart of the 5-year Treasury rate shows a breakout in the rate to a new high. That indicates that the market believes that long-term rates are headed higher soon.
If the restrictions on oil flow in the Middle East continue it is likely that long-term interest rates will move up toward the more distant highs shown on the charts above. But if there is a breakthrough that allows more normal flow of oil then interest rates could drop rapidly back toward previous levels.