How Bond Funds Performed in Q3 2026

Bond markets stumbled in the third quarter of 2026 as Treasury yields surged across the curve, pushing prices lower. The Morningstar US Core Bond Index fell 3.4%, the worst quarterly performance since Q3 2022 and among the four worst over 25 years. Pressure began in July after escalation in the Iran war lifted oil prices and revived inflation fears. In late August, Fed Chair Kevin Warsh’s remarks preceded the Fed’s first rate hike since 2023: a 25-basis-point move on Sep. 16. By late September, the 10-year Treasury yield was near 5.3%, up 85 basis points from June end. Long-duration Treasuries and munis dropped more sharply than credit- and floating-rate sectors.