April 29, 2026: Geopolitics Meet the Yield Curve

Among other events, investors this week will focus on the Federal Reserve’s policy meeting and subsequent press conference, seeking insight into the committee’s view on the near-term path of interest rates. That assessment has become more complicated in recent weeks. The war in Iran—and the associated disruption to global energy supplies—has intensified inflation concerns. Rising energy prices have pressured inflation expectations upward, leading investors to largely abandon earlier assumptions that the Federal Reserve might lower short-term interest rates later this year.

A more consequential development may be unfolding on Capitol Hill, where Secretary of Defense Pete Hegseth is expected to defend the Trump administration’s proposed $1.5 trillion defense budget. If approved, the proposal would represent an increase of roughly $440 billion over the prior budget. Importantly, according to the administration, this figure does not yet include any supplemental funding that may be requested to support ongoing military operations related to the Iran conflict.*

Approval of such a sizable spending increase would likely intensify scrutiny of the federal budget deficit, which had been narrowing last year. That progress now appears at risk. Higher government spending, combined with reduced tariff revenues, is darkening the U.S. fiscal outlook and raising the likelihood of increased government borrowing.

Bond markets have responded accordingly. Since the outbreak of the war, the 30-year Treasury yield has risen by more than 0.30%. Further increases in long-term bond yields may be in store.

* Courtney McBride and Erik Wasson. “Trump’s $1.5 Trillion Defense Plan Draws Rare GOP Pushback.” Bloomberg. April 29, 2026.

Weekly Market Update: April 29, 2026