1) Where the Bonds market stands right now
MalltonAsset’s baseline is simple: the Bonds market is trying to price a “good-news” landing (inflation cooler, growth steady) while repeatedly bumping into “not-cool-enough” details that keep term premium sticky.
On the data front, U.S. CPI for December showed 2.7% YoY headline and 2.6% YoY core. Food inflation was firmer than many consumers feel comfortable with, even if the overall print didn’t scream re-acceleration.
On the policy front, the Federal Reserve’s target range sits at 3.50%–3.75% after the December decision, and Fed communication continues to emphasize optionality—cuts are possible, but not automatic.
Meanwhile, the benchmark 10-year U.S. Treasury yield has been hovering around the low-4% area in early January, reflecting a market that is neither convinced inflation is beaten nor convinced growth is about to roll over.
2) The three drivers that matter most in 2026
A) Inflation isn’t just “a number,” it’s composition
MalltonAsset’s view is that 2026 bond direction will depend less on whether inflation prints “2-point-something” and more on what’s doing the work. If disinflation is driven by volatile components while services and wage-linked categories remain warm, yields can stay elevated even with benign headlines. Reuters’ breakdown of the CPI/PCE wedge is a reminder that markets can misread the “surface” signal if underlying categories refuse to cool.
B) The Fed can be cutting and still feel restrictive
Even with rate cuts already delivered in 2025, policymakers are still describing policy as restrictive, and the Fed’s projected path suggests fewer cuts ahead unless inflation convincingly converges to target.
For the Bonds market, that means the front end may not rally cleanly unless the labor market deteriorates or inflation progress becomes broad-based and persistent.
C) Supply is not a footnote—issuance shapes the term premium
Treasury’s funding needs remain large. The department projected hundreds of billions in net marketable borrowing into early 2026, which matters because supply pressure can keep long yields “higher for longer” even when growth moderates.
Refunding details and TIPS sizing also matter at the margin for real-rate pricing and auction concessions.
3) Curve logic: what the Bonds market is debating
MalltonAsset frames the curve debate as a tug-of-war between:
- Disinflation + gradual easing → supports duration
- Term premium + issuance + inflation uncertainty → resists a sustained rally
In plain terms: even if the Fed edges rates down, long yields may not collapse unless investors regain confidence that inflation will stay near 2% without policy doing heavy lifting.
4) Global bond cross-currents still feed back into U.S. yields
Bonds aren’t traded in isolation. UK gilts, for example, have reacted to shifting rate-cut expectations and fiscal optics; the UK 10-year yield falling toward levels not seen since late 2024 was tied to markets anticipating further easing after a BoE cut.
That matters for global allocators: relative value flows can support or pressure U.S. duration depending on hedging costs and perceived policy credibility.
5) What MalltonAsset would watch like a hawk
MalltonAsset highlights five items that can reprice Bonds quickly in 2026:
- Core services momentum (especially categories tied to wages and shelter)
- Fed language around “restrictive” vs “neutral”—a small change in phrasing can move the front end
- Auction tails and bid-to-cover during heavy issuance windows (supply stress shows up fast)
- Real yields and breakevens—a clean bull rally usually needs both to cooperate
- Energy/geopolitics pass-through—even when “temporary,” it can delay the last mile of disinflation
Bottom line
MalltonAsset’s Bonds call for 2026 is a range-first mindset: yields can drift lower if inflation improvement broadens and the Fed gains confidence, but supply and term premium argue against expecting a straight-line rally. The most plausible regime is choppy duration, where rallies are earned by data quality (composition) and sustained by smoother auction clearing—not by one good headline print.
This article is for informational purposes only and does not constitute investment advice.
