Bond Yields Fall as CPI Keeps Fed-Cut Bets Alive

Robert Teeter, Chief Investment Strategist at Silvercrest Asset Management, talks sector rotation and high valuations.

Wall Street got a degree of relief as relatively tame inflation data spurred bigger bets on Federal Reserve rate cuts, with bond yields falling and stocks little changed at the end of a wild week for markets.

Short-dated Treasuries outperformed, with two-year yields dropping toward their lowest since September 2022. Money markets priced in 63 basis points worth of Fed reductions in 2026 - equivalent to around 50% odds of a third cut by December. The equity market tried to find some stability after a tech-driven rout, with the S&P 500 still set for its worst week since November.

The consumer price index rose 0.2% in January, the smallest gain since July and restrained by lower energy costs. The core CPI rose from a year ago by the least since 2021.While services costs picked up last month, prices of core goods remained stable. The core CPI rose from a year ago by the least since 2021. The overall gauge also eased on an annual basis.

“There remain some trouble spots, but overall, the trend in inflation is lower and while the Fed is on pause for now, we expect somewhat lower rates as we move forward in 2026,” said Steve Wyett at BOK Financial.

Markets are “breathing easier” as price pressures remain contained, according to Seema Shah at Principal Asset Management.

“Continued labor-market strength gives policymakers cover to stay on hold, while further disinflation in the second half of the year should reopen the door to easing,” she said.

The Fed chose to hold interest rates steady in January given signs of stabilization in the labor market and inflation that’s still elevated. Data this week showed US payrolls rose by the most in more than a year and the unemployment rate unexpectedly fell, suggesting the labor market continued to stabilize at the start of 2026.

The yield on two-year Treasuries slid four basis points to 3.41%. More than 300 shares in S&P 500 rose, with the index hovering near 6,830. A gauge of tech megacaps lost almost 1%. An ETF tracking software firms rose 1.7%. The dollar wavered.

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