The global rate environment remains firmly "higher for longer" — and there is no end in sight. The US 10-year Treasury yield climbed to approximately 4.56%, while the 30-year bond surged above 5%, levels not seen since 2007. The global bond rout that deepened throughout May stems from acute inflation fears linked to the Iran conflict and the sharp spike in energy prices.

The Fed: No cuts in sight

The Federal Reserve held rates steady at 3.50%–3.75% at its April meeting, and no change is expected in June. Markets are pricing a 70%–72% probability that rates remain unchanged through the end of 2026. April CPI came in at 3.8% year-over-year — the highest since May 2023 — driven by a 17.9% surge in energy prices following disruptions to oil flows through the Strait of Hormuz. Major banks including J.P. Morgan and Goldman Sachs have removed all rate cuts from their 2026 forecasts, with some now flagging the possibility of a hike in early 2027.

ECB: The inflation vs. growth dilemma

The European Central Bank left its deposit rate at 2.00% at its April 30 decision, but the tone inside the room was notably hawkish. Christine Lagarde stated that the Governing Council "debated at length and in depth the possibility of hiking" — a rare admission of the intensity of the debate. Euro area inflation jumped to 3.0% in April from 2.6% in March, driven primarily by a 10.9% rise in energy prices. Markets are now pricing significant probability of a 25 basis point hike at the June meeting.

Bank of Israel: Decision day Monday

Israel's benchmark rate stands at 4.00%, and the Monetary Committee will convene on Monday, May 25, for its next rate decision. Israel's inflation is comparatively moderate — 1.9% over the past 12 months, comfortably within the 1%–3% target range. The shekel has continued to strengthen against the dollar, trading around 2.90 ILS/USD, which helps dampen imported inflation. Markets are pricing a 65%–68% probability of a 25 basis point cut, but the decision must also weigh the security and economic uncertainty stemming from the ongoing conflict.

Bond markets: 30-year Treasury at highs since 2007

The global bond selloff has extended to Asia, with Japanese 30-year yields crossing above 4% for the first time in decades. German Bunds and UK Gilts have also seen notable increases. G7 finance ministers discussed the inflationary risks from oil prices and the implications for sovereign debt at their recent meeting. US wholesale inflation hit its fastest pace since 2022, adding further pressure to bond markets.

The bottom line

The global macroeconomic picture continues to be dictated by energy shocks and geopolitical uncertainty. The Fed and ECB lean toward "higher for longer," while the Bank of Israel will signal this week whether it pursues an independent path or joins the global caution. Monday's rate decision will be the Bank's most significant signal since the escalation of the conflict.