US Inflation Cools, But Long-Term Bond Yields Grind Higher

The US Consumer Price Index (CPI) for July showed a slight decrease from 3.5% in June to 3.4% on an annualized basis and rose by 0.1% month-over-month, meeting expectations.

Core inflation, excluding food and energy costs, decreased from 2.6% in June to 2.5% in July, returning to its pre-Iran war level and easing concerns about the impact of spiking energy prices on overall inflation.

The Federal Reserve's next policy rate hike is still uncertain, with investors decreasing their bets on a September 15 increase from 50% to 40%, but expecting a December 9 hike instead, as the Fed tends to avoid making major decisions close to mid-term elections.

Despite this uncertainty, long-term US bond yields continue to rise, with the 30-year Treasury yield hitting its highest level in 25 years at 5.216%. This trend is significant because about 85-90% of US residential mortgage borrowers opt for 30-year fixed-rate terms, making it a crucial factor in determining their interest rates.