The Strait of Hormuz Is Just a Distraction. The Real Story Is Bonds. What the Yield Curve Is Saying.
See the picture below. Just look at this. Isn’t it weird?
Okay, unless you’re a casual bond enthusiast like me, maybe this won’t give you much of a boost. But maybe that will change when I explain this.
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I have unofficially dedicated the rest of 2026 to addressing every misunderstood part of investing I can find and demystifying it. It’s not like a 101 type thing. It’s more like “They told you X, but Y happens, let’s analyze it together.”
The stock market is taking its cues from the war in Iran. Blockage of the Strait of Hormuz threatens to disrupt the oil (CLJ26) market. Flows stop or become irregular, the risk increases as the bottom of the Bosphorus is full of mines, and countries fight over who should do what to stop it. Or let it go its own way. This has its own dangers.
Every move in the oil price turns into a chain reaction in the stock market. Not to mention other commodities that are up so much this year that there’s a chance the only thing they can do from now on is fall.
Is this a mess? Damn Bosphorus!
The U.S. Treasury market has been a safe haven for decades. Although continued high oil prices and the risk of generally higher inflation have caused long-term bond yields to rise in recent weeks, I still view the Treasury market as a safety valve. For three reasons:
Bonds start with you being paid your money. Coupon bonds pay an interest rate on the money you deposit. This differs from dividend stock, where payments are deducted from the stock value. If you hold the bonds until maturity, you will get back your investment and any income payments you receive. Simple.
If interest rates fall from here, Treasury bond prices will rise. This creates a “Catbird Seat” situation for bond investors. They can sell the bonds at a profit or record income payments every 6 months throughout the maturity.
If rates rise, as they have been doing since the war began, bond prices will fall. This may create some FOMO, as bonds you purchased at a 4% yield can now be purchased at a 4.5% yield. But you can hedge against higher rates, as I do devotedly with my bond portfolio. How? Put options into ETFs like the iShares 20+ Year Treasury Bond ETF (TLT), inverse ETFs like the ProShares Short 20+ Year Treasury (TBF), or simply trade around the core bond portfolio, trying to own ETFs that rise as rates fall.
What I’m talking about is actually active bond management. But you don’t need to practice this as actively as I do.
Why do I care about teaching you bond management? Because let’s face it. The past 20 years have been about one thing: stocks. But finally, bonds are worth taking a long look at. Really.
Bonds have entered a rare phase of internal disintegration. For months, the 2-year, 10-year and 30-year yields moved in a relatively tight formation, but starting in mid-March 2026, this synchronized dance broke down. The main reason for this is the violent collision between short-term Federal Reserve policy expectations and long-term structural fears, with the three main benchmark maturities pulling in completely different directions.
The 2-year Treasury has recently diverged from its longer-term peers as it responds to the immediate threat of energy-fueled inflation. With oil prices briefly exceeding $100 in early March, the market quickly pushed back on expectations of any Fed rate cut. For the first time in nearly three years, the 2-year yield rose above the effective federal funds rate, signaling that the smart money is backing a Fed that could stay higher longer than predicted even a month ago.
Meanwhile, 10-year and 30-year Treasuries are driven by a number of non-technical demons. Investors are now demanding higher premiums not just because of inflation but because cash has been locked up for decades due to a massive supply-demand imbalance.
There is also the debt ceiling issue. Persistent budget deficits led the Treasury Department to issue record volumes of long-term debt, creating a bond glut that the market had difficulty absorbing. The 30-year yield (running close to 5%) is starting to price in a period of high inflation coupled with slowing economic growth. This means a stagflationary environment in which long-term bonds lose their luster as a safety play.
Chart courtesy of Rob Isbitts via PiTrade.com
A quick look at the ROAR Score of the Invesco Equal Weight 0-30 Year Treasury ETF (GOVI), my pick for the first layer of bond ETF exposure, is that the level of implied risk has fluctuated over the last 12 months but is within a controlled range. Lots of yellow zone action. This ensured that bond prices remained relatively stable for a period of time, even as they tumbled and tumbled.
The takeaway for the bond investor is that the old rules of diversification are now on hold. In a synchronized market, bonds act as a hedge; they act as independent sources of volatility in this disaggregated market. But now, in this time of great uncertainty, I am looking for ways to use this to my advantage.
In summary: Bonds haven’t been this exciting in a long time; Most investors don’t even know what bonds can deliver, regardless of where the next big move in rates will be. This is a great time to learn. Because the stock market continues to be a situation where investors are holding on to the straw.
Created by Rob Isbitts ROAR ScoreBased on over 40 years of technical analysis experience. ROAR helps DIY investors manage risk and build their portfolio. For Rob’s written research, check out: ETFYourself.com.
At the time of publication, Rob Isbitts had no position (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was first published on: barchart.com
