Treasury Yields Stay Below 4.3% After June CPI at 3.2% and PPI at 2.6%

June CPI rose 3.2% year-over-year while core CPI held at 3.3%; PPI increased 2.6%. Markets had priced for larger yield moves higher. Instead, foreign official accounts and domestic pension funds increased net purchases of notes and bonds in the week following the releases, capping the move in yields. The 2-year/10-year spread narrowed to 25 basis points, the tightest since March.

The data arrive against a Federal Reserve balance sheet runoff that continues at $25 billion per month and Treasury issuance that has shifted toward shorter maturities. Real yields on 10-year TIPS remain above 2%, a level last seen before the 2022 tightening cycle. Equity multiples, particularly in rate-sensitive sectors, have priced in a terminal funds rate near 4.75% by year-end, an assumption the bond market has not yet validated.

The divergence matters because equity valuation models embed a lower discount rate trajectory than the forward curve currently implies. If buyers continue to clear auctions at these levels, the incentive for the Fed to cut before year-end diminishes. Primary dealers report reduced short positions in the 5- to 10-year sector, lowering the probability of a rapid yield spike absent a further inflation surprise above 3.4%.

Next data points are the July CPI release on 14 August and the Treasury refunding announcement on 31 July. Both will test whether the current bid for duration persists or whether supply pressure reasserts itself.