The post-election bond rally faced a setback this week as persistent inflation data and hawkish Federal Reserve commentary dampened investor sentiment. The 2-year Treasury yield surged 35 basis points, while the 10-year yield climbed nearly 30 basis points to settle at 5.14%. The Dollar Spot Index advanced 0.7%, marking its best week since early October.
U.S. bond prices reversed last week’s gains as evidence of stubborn inflation shattered hopes of a sustained rally. The 10-year Treasury yield broke past 5.00% for the first time since late October, while the 2-year yield saw its most dramatic weekly surge in over two years. The spread between the 10-year and 2-year yields narrowed by 7 basis points to 0.28%.
The iShares 20+ Year Treasury ETF (TLT) ended its worst week since April 2025, dropping over 3%, while the iShares 1-3 Year ETF (SHY) eased slightly, down 0.6%. Retail sentiment on both ETFs remained bullish, with high message volumes.
Selling pressure extended to international sovereign debt markets, with borrowing costs under investor scrutiny. October’s consumer price index figures exceeded forecasts for the third consecutive month, prompting Federal Reserve officials to endorse a potential half-percentage-point rate hike. The Dollar Spot Index logged its strongest weekly performance since early October, touching its highest level since May 2025.