On Tuesday, global bonds rallied as developed nations showed signs of gaining control over inflation. The bond market experienced fluctuations after a recent US inflation report showed prices cooling for the first time in six months. Despite initial expectations of a rate cut by the Fed, recent activity has been more uncertain as traders wait for additional confirmation regarding inflation trends.
Canada’s government debt led the way after its consumer price index eased, causing yields on benchmark 10-year Treasuries to decline around 4 basis points. Federal Reserve Governor Christopher Waller also provided reassurance, describing the latest US price pressure report as a positive sign. Similar data from the UK was anticipated to be released the following day.
Fixed income portfolio manager Stephen Bartolini noted Waller’s comments as dovish and highlighted concerns about economic growth, leading to lower yields. In Canada, two-year yields decreased following the data release, while 10-year UK notes and German yields also saw declines. A large block trade in two-year note futures impacted the front end of the curve in Treasuries, but the gains faded toward the end of the trading session.
Waller’s comments, along with additional Fed speeches this week, shed light on the central bank’s stance on achieving 2% inflation. Market expectations currently suggest a potential easing of 40 basis points this year, with a potential rate reduction in November. Despite Waller’s statement that he would need to see sustained good inflation figures before considering rate cuts, traders increased bets on a Bank of Canada cut next month following a continued decrease in the nation’s core inflation rate. The market remains vigilant for further developments in inflation trends and central bank actions.
