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Inflation puts a hike in play: Last week revolved around two August inflation reports, and oil sat behind both. Thursday’s August Producer Price Index rose more than expected on a year-over-year basis as energy costs jumped. Friday’s August Consumer Price Index annual print was unchanged at 3.4%, with its energy component seeing its first increase since May on rebounding gasoline prices. Core CPI, which strips out food and energy, posted its strongest monthly gain since April and ran firmer than expected. However, the annual pace still eased to its lowest since March 2021. Taken together, the readings reinforce the sense that inflation is not cooling as fast as policymakers would like. Escalating hostilities in the Middle East, including a drone strike on a pumping station along Saudi Arabia’s East-West pipeline, pushed Brent crude oil above $100 a barrel for the first time since July, to as high as $110. The outage puts roughly 4% of global supply at risk, with US Energy Secretary Chris Wright saying the line could restart “very soon” while AP reported a three- to five-week repair timeline. The International Energy Agency (IEA) warned that a full recovery in Middle East oil flows may not arrive until 2027. The inflation reports cemented rate hike expectations while the jump in oil further bolstered them, and by Friday markets had put a quarter-point increase at this week’s meeting firmly on the table. The University of Michigan’s preliminary September consumer sentiment survey added to the discomfort, showing sentiment softening even as the public’s expectations for future inflation moved higher.

The climb toward 5%: Treasury yields rose over the week as the jump in oil revived inflation concerns. The sharpest move came at the front end, where expectations for Fed rate moves are set, with the 2-year yield jumping about 26 bps to roughly 4.63%. The 10-year Treasury yield, a key benchmark for lending across the market, climbed to around 4.97%. The U.S. Treasury auctioned off a total of $119 billion in Treasury auctions last week with investors steeping into the market given the recent sell-off in yields of late. Appetite was especially strong for the 30-year bond, the first long-end auction to follow the launch of the expanded buyback program. It drew robust demand amid yields not seen since 2007. On the supply side, the Treasury’s first operation under its enlarged buyback program underwhelmed. The department had tripled the size of the operation to a $6 billion maximum but ultimately purchased only about $5.2 billion of longer-dated debt — and even that fell short of the market demand-side hopes for a larger show of support.

FNMA DUS/MBS rate locks hit lowest since 2024: Elevated Treasury yields and a shortened Labor Day holiday week kept Fannie Mae DUS/MBS lending light last week. Rate lock volumes experienced their lightest week since July 2024 with roughly $200 million pricing last week. Investor demand for agency products held firm as spreads across standard structures were little changed, holding near their year-to-date averages. Freddie Mac resumed issuance following its customary two- to three-week August quiet period and was the more active issuer, pricing its K-182 transaction, a $1.15 billion 10-year K-Deal, alongside the ML-37 deal, a $371 million tax-exempt offering. Freddie also brought roughly $800 million of Multifamily Participation Certificates to market, including fixed-rate and callable structures ranging from 5- to 15-years and floating-rate paper in the 7- to 10-year part of the curve. In broader credit, corporate spreads widened modestly, with the Bloomberg Single A 10-year index about 3 bps wider on the week to 68 bps, above its year-to-date average of roughly 62 bps, while the Markit CDX IG 5-Year widened about 1 bp to 51 bps, still inside its year-to-date average of about 53 bps. Investment-grade desks priced nearly $68 billion of supply, just shy of the $70 billion dealers had forecast for the week.

The week ahead: The week belongs to the Federal Reserve. The Federal Open Market Committee meets September 15^th-16^th, with the rate decision due Wednesday afternoon. Following last week’s inflation reports, futures markets now price roughly a 90% chance of a quarter-point hike, up from about 60% a week earlier, and now point to a second increase by December as the more likely path. A hike would be the Fed’s first in three years and would begin to unwind the rate cuts delivered late last year. Setting the stage, the 10-year Treasury yield crossed 5% Monday morning, its first move above that level since 2023, as the Saudi pipeline outage and firmer inflation data pulled forward expectations for tighter policy. Just as important as the decision itself will be the Fed’s updated Summary of Economic (SEP) projections, including the closely watched dot plot, which is expected to shift higher. However, Fed Chair Warsh has signaled little regard for the dot plot as a guidance tool. His press conference will be parsed for whether he frames any move as a one-time adjustment or the start of a longer tightening cycle, a distinction that will set the tone for markets through year-end.

The data calendar supports the Fed backdrop. August retail sales land Wednesday morning, hours before the FOMC decision. Consensus looks for a rebound after a soft July, lifted by gasoline prices, vehicle sales, and back-to-school spending. A print in line would point to an economy still growing at a healthy pace. Weekly jobless claims arrive Thursday and August industrial and manufacturing production close out the week Friday, with claims expected to stay low, consistent with the slow pace of layoffs seen through the summer. On the supply side, the government’s $13 billion sale of 20-year bonds on Tuesday will test investor appetite at these higher yield levels, a supply picture kept in focus by a federal deficit that has run near record levels this year. Corporate issuers are front-loading around the FOMC decision, with dealers forecasting roughly $55 billion of investment-grade supply this week and much of it expected to clear before Wednesday afternoon.

Economic Calendar: (Week of 09.14.2026 – 09.18.2026):

09/15: Tuesday

• U.S. To Sell $13 Billion 20-Year Bond Reopening

09/16: Wednesday

• Aug: Retail Sales Advance MoM (Est. 0.8%, Prev. -0.6%)
• Sep 16: FOMC Rate Decision (Est. 3.75%-4.00%, Prev. 3.50%-3.75%)

09/17: Thursday

• Sep 12: Initial Jobless Claims (Est. 207K, Prev. 206K)
• Sep 12: Initial Claims 4-Wk Moving Avg (Prev. 206K)
• Sep 5: Continuing Claims (Est. 1,780K, Prev. 1,774K)

09/18: Friday

• Aug: Industrial Production MoM (Est. 0.3%, Prev. 0.2%)
• Aug: Manufacturing Production MoM (Est. 0.3%, Prev. 0.2%)