The U.S. economy expanded at a solid pace in the second quarter, driven by strong consumer spending and business investment, defying earlier slowdown concerns. Long-dated Treasury yields have held above 4.5 percent for much of the period, reflecting economic resilience.
Inflation showed modest month-over-month deceleration in August, primarily due to easing energy costs, but core inflation—which excludes volatile food and energy—remained elevated. Sticky services inflation and a tight labor market continue to underpin broader price growth.
The yield curve remains inverted, with the two-year Treasury trading above the 10-year, reflecting market skepticism about near-term rate cuts. Futures markets are pricing a high probability that the federal funds rate will stay elevated through year-end, offering limited relief to duration-heavy fixed-income portfolios.
Federal Reserve officials have emphasized a data-dependent approach, and the combination of solid growth with persistent inflation reinforces the central bank's cautious stance on rate adjustments. Duration risk remains a primary concern for bond managers positioned for easing that may not arrive until 2025.
