The bond weekly wrap: slower than expected disinflation creates a floor for bond yields. The bond weekly wrap: slower than expected disinflation creates a floor for bond yields. The bond weekly wrap: slower than expected disinflation creates a floor for bond yields.

The bond weekly wrap: slower than expected disinflation creates a floor for bond yields.

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  The latest data on core and headline PCE in the US met expectations, but the six-month annualized data increased to 2.5% and 3.1%, respectively, up from 1.9% and 2.5% in the previous month. In Europe, core and headline CPI dropped at a slower pace than what economists had predicted. These movements are likely to set a floor for bond yields as central banks will become more cautious in reducing interest rates in the near future. As a result, government bond yields on both sides of the Atlantic are expected to remain rangebound until the macroeconomic outlook becomes more evident.

The highlight of the week has been inflation, with the PCE deflator meeting expectations, rising +0.3% monthly and 2.4% YoY, the lowest since February 2021. However, the core PCE remains sticky, running at 0.42% MoM. The problem with this report is that while core PCE was running at 1.9% on a six-month annual basis the month before, after this week's report, it rose to 2.5%. Also, headline PCE rose from 3.1% to 2.5% on a six-month annualized basis, showing that the disinflation story might be losing steam.

In the meantime, inflation expectations are rising. The 2-year US breakeven rate rose near 2.5%, the highest since March 2023, while the 5-year US breakeven rate rose to 2.78%, the highest since March 2023. Breakeven rates are calculated as the spread between nominal bond yields and inflation-linked bond yields and represent market expectations on inflation in a few years. Inflation expectations are important because they influence decisions about consumption and investment. For example, if corporations expect inflation to be higher in two years, they would spend today, fueling inflation further. Rising breakeven rates are bearish for bonds and create a floor for US Treasury yields.

Source: Bloomberg.

In Europe, headline and core inflation continue to fall, but slower than economists expected. There are signs that the 3-month and 6-month annualized headline and core inflation have bottomed, building the case for less aggressive rate cuts by the ECB. However, the recent drop in CPI will enable the ECB to revise the staff inflation projections for this year downward at next week's ECB monetary policy meeting, giving a modest boost to European sovereign bonds, as illustrated in our ECB preview.

However, interest rates will likely trade rangebound until the macroeconomic picture and disinflationary trends become clearer.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.