Inflation

By Tuesday's close, they were back well below the 5% mark, with the 30-year's lower on the day by six basis points to 4.80%.

Wednesday brings the next pivotal data point, with the release of the latest consumer-price figures, which are forecast to show inflation remains sticky.

The overall price drop was offset by interest payments, allowing a broad gauge of the Treasury market to post a gain of about 0.7% this year through Dec. 30.

Treasury yields remain near the upper end of their trading range for this year given the limited outlook for further interest rate cuts, along with concerns that rates will remain elevated because of the potentially inflationary policies being proposed by President-elect Donald Trump.

Investors have been demanding additional yield compensation, or term premium, for long-term Treasuries amid signs of sticky inflation.

Federal Reserve Gov. Christopher Waller, a Trump appointee, said that while recent inflation readings are concerning, monetary policy would remain restrictive even if the central bank cuts interest rates by another quarter-point this month.

Traders are pricing in 34 basis points worth of easing at the Fed's September gathering, trimming their expectations from a day earlier — and lowering the odds of a half-point cut at the next central bank meeting to about one-third.

The figures, to be published Wednesday by the Bureau of Labor Statistics, will probably show the consumer price index, and a "core" gauge excluding food and energy, both advanced 0.2% in July.

The irony is, Trump's platform — including tax cuts, tariff increases and a crackdown on immigration — would, in the view of many economists and investors, stoke price pressures.

Optimism tied to an ebb in inflation was on full display this week in US government debt, with yields across the curve slumping as the data was seen supporting the case for lower borrowing costs as soon as September.

Optimism over lower rates spurred a shift into riskier corners of Wall Street — as money exited the long-favored safety trade of technology megacaps.

Stubborn inflation is expected to work its way down, but combined with higher-for-longer interest rates, consumers are feeling the effects differently across the credit spectrum.

In sessions on Tuesday, panelists said although inflation is sticky, long-term inflation expectations are very well anchored and he consumer picture is not as dire as previously thought, allowing certain risk markets to embrace a soft landing.

The so-called core consumer price index climbed 0.3% from March, snapping a streak of three above-forecast readings which spurred concern that inflation was becoming entrenched.

Policymakers need more evidence that inflation is heading sustainably to the central bank's 2% goal before acting, he said.

The annual inflation rate has dropped to 3.2% in October from its 2022 peak of more than 9% after the Federal Reserve embarked on an aggressive campaign to cool price pressures.

The bond market recovery has come amid some bouts of wild back-and-forth swings, yet is gaining ground since the Fed left its benchmark policy rate unchanged earlier this month.

The Federal Reserve released its semiannual financial stability report highlighting elevated asset values, funding issues and pockets of leverage as top concerns.

Inflation pressures are easing, which could give policymakers room to keep interest rates at or near current levels for the time being.