U.S. bond market extends global rally, Fed’s Waller provides some relief

U.S. Treasury yields dropped on Thursday, fueling a continuation of the global rally in government debt after a significant sell-off earlier in the week pushed 10-year instruments to multi-year highs worldwide. Waller, a Federal Reserve Governor, offered some reassurance by expressing a more positive outlook during an interview.

He noted that while inflation remains above the Federal Open Market Committee's 2% target, recent data shows hints of disinflation. If this trend persists, Waller would prefer to keep the federal funds rate at its current level. He emphasized that he believes underlying inflation is better than what core figures indicate. Further updates on employment and inflation data will come before the next FOMC meeting, and Waller expects the employment figures to align with recent trends.

The Fed governor will closely monitor August's inflation numbers. If these continue to improve, he would likely support maintaining the current policy rate. The stabilization in bond yields provides a brief respite for rate-sensitive sectors and corporate debt markets, which have been pressured by the surge in risk-free discount rates.