Capital Economics: US Treasury yields may face further short-term pressure after inflation exceeds expectations

John Higgins, an analyst at Capital Economics, stated in a report that after the release of higher-than-expected inflation data, U.S. Treasury yields may face further short-term pressure. On Tuesday, the yield on the 2-year U.S. Treasury rose more than the 10-year, reflecting heightened expectations of tighter Federal Reserve policy. For longer-term Treasuries, the main driver of the yield increase was the rise in real yields; this indicates the factors behind this trend are market expectations for real interest rates and term premiums, rather than inflation risk. Capital Economics expects that if the recent stock market rebound cannot be sustained, the direction of yields could reverse. However, the institution also cautions that if the current artificial intelligence bubble bursts in the future, the resulting market rebound may be less strong compared to when the internet bubble collapsed, as the Federal Reserve is unlikely to implement rate cuts on the same scale as it did back then.