Treasury Yields Reached Two-Month Lows. 2/12/26

Why It Matters

A dip in Treasury yields paired with rising volatility heightens sensitivity to Friday’s CPI, which could alter the Fed’s rate‑cut trajectory and impact borrowing costs across the economy.

Key Takeaways

• Treasury yields fell to 4.10%—lowest since early December
• 30‑year auction demand surged, pushing yields down seven basis points
• Market expects two 25‑bp Fed cuts by October, possibly a third
• Volatility index rose despite lower yields, signaling investor uncertainty
• Tomorrow’s CPI and benchmark revisions could reshape Fed rate outlook

Summary

Treasury yields slipped to 4.10%, the lowest level since early December, as strong demand in the 30‑year auction drove rates down seven basis points on the day and ten on the week. The market’s focus now shifts to Friday’s CPI release, which could reshape expectations for Federal Reserve policy.

The session’s price action was marked by a choppy week: yields rose on Monday, fell on Tuesday, spiked after a robust jobs report on Wednesday, and finally dropped today on the back of “demand through the roof” in the 30‑year auction. Despite the decline, the SVAL volatility index climbed, reflecting heightened uncertainty ahead of inflation data.

Analysts note that investors are currently pricing in two 25‑basis‑point Fed cuts—one in July and another in October—with a possible third in December. However, tomorrow’s CPI numbers and accompanying annual benchmark revisions could force a reassessment of that timeline.

For bond market participants, the combination of lower yields, rising volatility, and pending inflation data underscores the need for agile positioning. A surprise in CPI could trigger rapid shifts in rate expectations, influencing borrowing costs, equity valuations, and portfolio hedging strategies.

Original Description

U.S. Treasury yields moved lower during a choppy week of trading, with the 10-Year Treasury Note yield dipping briefly below 4.10% to reach its lowest level since early December. The session was marked by strong demand for Treasuries, particularly evident in a 30-Year auction that saw significant interest, driving yields down 7 bps on the session. Despite the move lower in yields, volatility as measured by the CBO index moved higher. Market participants are now focusing on the upcoming CPI data and annual benchmark revisions. Current market pricing suggests two 25 bps rate cuts, potentially in July and October, with a third possible in December depending on the trajectory of inflation data.

https://www.cmegroup.com/markets/interest-rates.html

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