Treasuries: ISM Price Surge Sparks Stagflation Fear
The ISM Manufacturing Prices Paid index surged to 70.5 in February 2026, smashing the consensus estimate of 58.2 and marking the highest input-cost reading in months. The magnitude of the surprise — more than 12 points above expectations — sent a clear signal: factory-gate inflation is reaccelerating even as the broader economy shows signs of cooling. This divergence matters for Treasury investors because it arrives alongside a sharply weaker employment outlook. Non-Farm Payrolls estimates for March 6 have dropped to just 70,000, half the prior reading of 130,000. Rising input costs paired with weakening job creation is the textbook definition of stagflation — the worst-case scenario for central bank policymakers who must choose between fighting inflation and supporting growth. The 10-year Treasury yield has drifted down to 4.02% as of late February, retreating from 4.18% earlier in the month. But the ISM data complicates the bond rally narrative. If inflation pressures are building at the producer level, they will eventually pass through to consumer prices — potentially stalling the Federal Reserve's rate-cutting cycle just as the labor market softens. The next two weeks of data releases (NFP March 6, CPI March 11, GDP/Core PCE March 13, and the FOMC meeting March 18) will determine whether this stagflation signal is a one-off anomaly or the start of something more concerning.