Treasury Yields Fall on Disinflation Data, War Risk Limits Decline
Key Questions
What caused Treasury yields to fall recently?
Yields declined after cooler CPI and PPI readings, including the softest inflation print since 2020. This prompted a rally in the US bond market and led traders to abandon rate-hike expectations.
What limited further declines in Treasury yields?
Ongoing Middle East strikes introduced war risk that capped the downward move in yields despite the favorable inflation data.
What do the latest jobless claims indicate about the labor market?
Claims at 208k reflect continued labor-market resilience, which supports the view that the Federal Reserve will maintain current policy.
What is the market currently expecting from the Federal Reserve?
Market pricing reflects a Fed hold on rates, with traders having abandoned further rate-hike bets following the disinflation data.
How has the Treasury yield curve changed and what does it mean for banks?
The curve has un-inverted to a 40 bps spread, altering the earnings math for banks after remaining inverted through most of 2023 and 2024.
Yields fell after cooler CPI/PPI, but Middle East strikes limit further decline. Jobless claims at 208k show labor resilience. Market pricing Fed hold.