The Strait of Hormuz Is Just a Distraction. The Real Story Is Bonds. What the Yield Curve Is Saying.

Look at this picture below. Just look at it. Isn’t it strange? 

OK, if you are not a simple bond geek like I am, maybe it won’t give you much of a rise. But when I explain it, maybe that will change.

I’ve informally dedicated the rest of 2026 to taking every misunderstood part of investing I can find and trying to demystify it. Not like a 101 type of thing. More of a “they told you X but Y is happening, so let’s analyze it together.”

The stock market is taking its cues from the war in Iran. The blockage of the Strait of Hormuz threatens to disrupt the oil (CLJ26) market. Flows stop or become sporadic, risk increases because the floor of the Strait is filled with mines, and countries are wrestling over who should do what to stop it. Or to let it run its course. Which has its own dangers.

Every tick in the price of oil translates to a chain reaction in the stock market. Not to mention other commodities, which ran up so much this year that there’s a chance that all they can do from here is fall. 

Is it a mess? Damn Strait it is! 

How Bonds Are Bringing Helpful Relief 

The U.S. Treasury market has been the safe haven for decades. And even though the risk of sustained higher oil prices and higher inflation in general has caused long-term bond rates to edge up in recent weeks, I still see the Treasury market as a safety valve. For three reasons:

1. Bonds start with paying you on your money. Coupon bonds pay an interest rate on the money you invest. This is different from a dividend stock, where the payments are deducted from the value of the stock. With bonds, if you hold until maturity, you get your investment back, plus the income payments received. Simple.
2. If rates drop from here, the prices of Treasury bonds rise. That creates a “Catbird Seat” situation for bond investors. They can sell the bonds at a profit, or keep ringing the register with the income payments every 6 months, through maturity.
3. If rates rise, as they have started to do since the war broke out, the bond prices will go down. That might create a bit of FOMO since bonds you bought for 4% yield might now be able to be purchased for 4.5%. However, as I do devoutly within my bond portfolio, you can hedge higher rates. How? Put options on ETFs like iShares 20+ Year Treasury Bond ETF (TLT), inverse ETFs like ProShares Short 20+ Yr Treasury (TBF), or just trading around the core bond portfolio, trying to own ETFs that are rising when rates are falling.

What I’m describing is essentially active bond management. However, you don’t have to practice it as actively as I do.

Why do I care about teaching you about bond management? Because let’s face it. The past 20 years have been about one thing: equities. But finally, bonds are worth a long look. Literally. 

What Makes the Treasury Yield Curve So Interesting Now? 

Bonds have entered a rare phase of internal divergence. For months, the 2-year, 10-year, and 30-year yields moved in a relatively tight formation, but as of mid-March 2026, that synchronized dance has broken down. The primary cause is a violent collision between short-term Federal Reserve policy expectations and long-term structural fears, leaving the three major benchmark maturities pulled in entirely different directions.

The 2-year Treasury has recently decoupled from its longer-term peers as it reacts to the immediate threat of energy-driven inflation. With oil prices briefly exceeding $100 in early March, the market has rapidly pushed back expectations for any Fed rate cuts. For the first time in roughly three years, the 2-year yield has climbed above the effective federal funds rate, signaling that the smart money is bracing for a Fed that might stay higher for longer than anyone anticipated even a month ago.

Meanwhile, the 10-year and 30-year Treasuries are being driven by a separate set of non-technical demons. Investors are now demanding a higher premium for locking up cash for decades, not just because of inflation, but because of a massive supply-demand imbalance. 

And there’s the debt ceiling hangover. Persistent budget deficits have led the Treasury Department to issue record volumes of long-term debt, creating a surplus of bonds that the market is struggling to absorb.The 30-year yield (holding near 5%) is starting to price in a period of high inflation paired with slowing economic growth. That implies a stagflationary environment where long-dated bonds lose their luster as a safety play.

A quick look at the ROAR Score for the Invesco Equal Weight 0-30 Year Treasury ETF (GOVI), my go-to as a first layer of bond ETF exposure, is that while its implied risk level has fluctuated over the past 12 months, it has been in a controlled range. Lots of yellow-zone action. That has made it so that while bond prices dip and flip, they have been relatively stable for a while. 

The takeaway for the bond investor is that the old rules of diversification are currently on hiatus. In a synchronized market, bonds act as a hedge; in this decoupled market, they act as independent sources of volatility. But now, in this time of great uncertainty, I am looking for ways to use that to my advantage. 

Bottom line: bonds have not been this exciting in so long, most investors do not even know what they are capable of delivering, regardless of where the next big move in rates is. This is a great time to learn. Because the stock market continues to be a case of investors grasping at straws.

Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob's written research, check out ETFYourself.com.