Inflation Expectations Drives Treasury Yields More Than Fiscal Concerns -- Market Talk

Dow Jones01-16

1017 GMT - Continued growth, easing inflation and gradual Federal Reserve rate cuts should allow both short- and long-end U.S. Treasury yields to decline, overriding fiscal concerns, Payden & Rygel's Jeffrey Cleveland in a note. A flatter yield curve, while unusual by recent standards, would not be unprecedented, the chief economist says. Concerns about U.S. fiscal deficits have fueled fears that long-term rates could remain elevated. However, inflation expectations play a much larger role, while fiscal issues primarily affect term premia at the margin, he says. "If inflation continues to moderate, longer-term Treasury yields can still move lower, even without a recession," he says. (emese.bartha@wsj.com)

(END) Dow Jones Newswires

January 16, 2026 05:17 ET (10:17 GMT)

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However, inflation expectations play a much larger role, while fiscal issues primarily affect term premia at the margin, he says. \"If inflation continues to moderate, longer-term Treasury yields can still move lower, even without a recession,\" he says. 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A flatter yield curve, while unusual by recent standards, would not be unprecedented, the chief economist says. Concerns about U.S. fiscal deficits have fueled fears that long-term rates could remain elevated. However, inflation expectations play a much larger role, while fiscal issues primarily affect term premia at the margin, he says. \"If inflation continues to moderate, longer-term Treasury yields can still move lower, even without a recession,\" he says. 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