Treasury Yields Tick Higher as Investors Navigate Stagflation Fears

U.S. Treasury yields edged slightly higher on Monday after the 10-year yield ended last week at its lowest level of the year. Investors are now focusing on upcoming economic data while grappling with concerns over slowing economic growth and persistent inflation.

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Yield Movements
The yield on the 2-year Treasury note increased to 4.218%, up from 4.192% on Friday afternoon. Treasury yields and bond prices move inversely, meaning as yields rise, prices fall.
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The 10-year Treasury yield climbed to 4.438%, slightly above Friday’s 4.419%, which marked its lowest level since December 17, according to Dow Jones Market Data.
Meanwhile, the 30-year Treasury bond yield rose to 4.687%, up from 4.667% at the end of the previous week.

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Market Drivers
Yields fell late last week after weak economic data raised concerns about the strength of the U.S. consumer. A sharp decline in the stock market on Friday, which saw the Dow Jones Industrial Average and the S&P 500 record their largest single-day percentage drops of 2025, increased demand for safe-haven assets like Treasurys, pushing yields lower.

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In Europe, Germany’s elections over the weekend produced no major surprises. The center-right Christian Democratic Union (CDU) and its Bavarian affiliate, the Christian Social Union (CSU), received the most votes.

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The far-right Alternative for Germany party nearly doubled its vote share compared to the last election in 2021 but performed slightly below expectations. This outcome could pave the way for a grand coalition between the CDU/CSU and the center-left Social Democratic Party, although negotiations may take several weeks.

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U.S. economic data released on Friday added to investor concerns. The S&P Global U.S. services purchasing managers index (PMI) fell to 49.7, its lowest level in 25 months and below the 50 mark, signaling a contraction in service-sector activity. Additionally, the University of Michigan’s consumer sentiment survey indicated rising inflation expectations and declining confidence. Data also showed that January existing-home sales declined.

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The stock market’s sharp selloff on Friday followed Thursday’s decline, which was triggered by disappointing earnings guidance from Walmart Inc. The retail giant’s cautious outlook heightened worries about the resilience of the American consumer.

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This week, investors will be closely watching the release of the January personal-consumption expenditures (PCE) index on Friday, which is the Federal Reserve’s preferred measure of inflation.

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Federal Reserve Outlook
Federal Reserve officials have suggested they are not in a rush to cut interest rates. According to Steve Barrow, head of G-10 strategy at Standard Bank, the Fed’s cautious stance is “fully justified,” particularly due to concerns that government policy uncertainty, including potential tariffs, could lead to higher inflation.

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Barrow noted that while the Fed is not facing immediate pressure to ease monetary policy, rate cuts are unlikely to occur before the end of the year. He also expressed skepticism about a significant decline in bond yields, given the recent rise in inflation expectations.

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Treasury yields have recovered from the unexpected jump in January’s Consumer Price Index (CPI) earlier this month. The upcoming PCE report could offer further insight, with analysts forecasting a modest 0.3% monthly increase in both headline and core inflation measures.

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Despite these forecasts, Barrow cautioned that rising inflation expectations could push the 10-year Treasury yield back toward the 5% threshold.

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