February US CPI met forecasts, with core inflation easing and supercore cooling after January’s tariff-related rise. CPI supercore slowed from 0.59% month on month to 0.35% in February. TD Securities projects PCE supercore at 0.28% for February and core PCE at 0.31% month on month. The note says tariff pass-through appears to have moderated versus January.

Inflation Outlook

The report expects an oil-driven rise in energy prices to feed into near-term inflation data. It forecasts March CPI will show higher energy prices, pushing year-on-year inflation towards 3%. Energy inflation was linked to higher petrol prices, with an expectation of a further rise in March after oil prices jumped during the Iran conflict. The Federal Reserve is expected to remain patient while Middle East developments remain uncertain. US 10-year Treasury yields are expected to stay rangebound until the second half of the year. The projected range for 10-year yields is 4.0–4.3%, after a brief move above the range ahead of strikes in Iran. We recall that the moderation in supercore inflation back in February 2025 was a temporary signal. As we expected, the oil shock stemming from the Iran conflict that spring did indeed push headline inflation higher throughout last year. That persistence is now clear, as the latest Bureau of Labor Statistics data for February 2026 shows headline CPI remains elevated at 3.2% year-over-year.

Rates Strategy

The Federal Reserve’s patience, which we anticipated through the second half of 2025, is now clearly exhausted. Recent speeches from Fed governors have signaled a more hawkish stance, effectively taking rate cuts off the table for the first half of this year. This is a significant shift from the more neutral position the market had priced in just a few months ago. Consequently, the 4.0-4.3% range in 10-year Treasury yields that defined much of last year’s trading is no longer the ceiling. With the 10-year note currently yielding around 4.45%, the strategy of buying dips has become risky. Traders should now consider positioning for higher rates, possibly using options on Treasury futures to protect against further yield increases. The view from 2025 that real rates would outperform nominals proved to be correct, and this trend should continue. Concerns about persistent inflation make derivatives tied to Treasury Inflation-Protected Securities (TIPS) attractive. Volatility in the rates market is picking up, suggesting that straddles or strangles on interest rate futures could be effective for capturing bigger moves. Energy remains the primary driver we identified a year ago. WTI crude prices, which spiked to over $90 a barrel during the 2025 conflict, have stabilized but remain stubbornly high, trading this week near $85 a barrel. This continues to feed into inflation, meaning call options on major energy ETFs or futures contracts are warranted to position for sustained price pressure. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account