On Tuesday, global bonds rallied as developed nations showed signs of regaining control over inflation. Canada’s government debt led the charge after its consumer price index eased, causing yields on benchmark 10-year Treasuries to decline by around 4 basis points. Federal Reserve Governor Christopher Waller provided reassurance, describing the latest US price pressure report as a positive sign. Similar data from the UK was expected to be released the following day.
The bond market experienced fluctuations following a recent US inflation report that showed prices cooling for the first time in six months. Initially, the release caused the market to anticipate a rate cut by the Fed, but recent activity has been more uncertain as traders wait for additional confirmation regarding inflation trends. 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.
