The bond market is pricing in a Federal Reserve pause on rate hikes extending through summer 2026. Treasury yields have fallen sharply as inflation data showed cooler-than-expected readings. The 10-year Treasury yield now sits at 4.15%, down from 4.45% in early May.
May’s CPI report showed headline inflation at 3.1%, down from 3.4% in April, and core inflation dipped to 3.8%. Fed Fund Futures now price a 60% probability of a rate cut by year-end. TLT (20+ year Treasury) is up 4.2% and AGG (broad bond index) up 2.1% this month.
Lower rates benefit high-growth companies disproportionately. Growth-heavy indexes like QQQ should outperform. Bond investors should extend duration now to lock in yields. A 60-40 equity-bond portfolio becomes more attractive as rate tailwinds return.
