Federated Hermes: Inflation Expectations Returned as Key Fixed-Income Shift in First Half of 2026

A Federated Hermes report said the most notable change in fixed-income markets in the first half of 2026 was the return of inflation expectations. According to Jin10, Federated Hermes senior fixed-income portfolio manager Karen Manna wrote that, historically, geopolitical conflicts tend to trigger risk-off sentiment that lifts U.S. Treasury prices and pushes yields lower. However, after the Iran conflict broke out, inflation concerns dominated markets and drove yields higher, particularly at the short end of the yield curve. Manna said market expectations shifted sharply. Instead of expecting more than two interest-rate cuts as previously anticipated, the market began discussing the possibility of one or even two rate hikes.