NEW YORK, July 14, 2026, 10:05 EDT
- Core consumer prices stayed flat in June, and headline CPI dropped 0.4%. That’s the biggest monthly drop since April 2020.
- Traders now see about a 10% chance of a July rate hike, down from 35%. Odds for September rate action dropped too, now at around 60% versus over 90% before.
- Treasury data show that from July 8 to July 13, about five-sixths of the 10-year Treasury yield’s gain was driven by a move up in inflation-adjusted yields.
Treasury yields fell back on Tuesday after June inflation came in softer than expected, cutting odds for a near-term Fed hike. But investors got a mixed message. Most of the recent move up in long-term yields was tied to higher real rates, not rising long-term inflation bets. The market bounced, but only for now.
The two-year yield dropped to around 4.19% early in New York, tracking Fed policy bets. The 10-year yield pulled back to about 4.58%. It had neared 2026 highs before the inflation data. The Nasdaq Composite added about 1% at the open. The S&P 500 was up 0.2%. Rate-sensitive names rallied first.
CPI dropped 0.4% in June after May, and was up 3.5% year-on-year. Both numbers came in lower than economists had expected. Core CPI, which leaves out food and energy, stayed flat last month and rose 2.6% over the last year, down from 2.9%. Energy prices were down 5.7% and made up most of the drop. The data gives the Fed some breathing room.
| Fed meeting | Hike odds before CPI | Hike odds after CPI | Repricing |
|---|---|---|---|
| July 28–29 | 35% | About 10% | Down 25 points |
| September 15–16 | More than 90% | About 60% | Dropped at least 30 points |
Interest rate futures following the CPI report; Fed meeting dates pulled from the Federal Reserve calendar.
The way the bond rally played out is important. The two-year yield fell around seven basis points, while the 10-year moved just three, signaling that traders mostly delayed their bets on when rate hikes might start. One basis point equals one-hundredth of a percent. The market just pushed back tightening; it didn’t call an end to inflation.
Treasury Inflation-Protected Securities are sending the clearest signal for investors. Real yields, which show the return after inflation, and the breakeven rate—the gap between nominal and real yields that acts as the market’s average expected inflation gauge—are moving. Official closing data through Monday show most of the recent bond selloff hit real yields, not the inflation part.
| Maturity | July 13 nominal yield | July 13 real yield | Implied breakeven | July 8–13 move: nominal / real / breakeven |
|---|---|---|---|---|
| 5-year | 4.37% | 2.06% | 2.31% | up 6, up 6, flat |
| 10-year | 4.62% | 2.36% | 2.26% | up 6, up 5, up 1 bp |
| 30-year | 5.10% | 2.89% | 2.21% | up 4, up 3, up 1 bp |
Numbers based on U.S. Treasury nominal and real yield curve figures.
For 10-year Treasuries, five out of six basis points gained since July 8 came from the real yield. Looking at all three maturities, the real yield made up 75% to 100% of the recent move. This suggests the selloff was not just about oil and inflation worries. The numbers point to bigger demand for capital and heavy borrowing from the government.
Mark Hackett, chief market strategist at Nationwide Investment Management Group, called the CPI release “a minor sigh of relief.” Brian Jacobsen, chief economist at Annex Wealth Management, took a harder line: “Headline CPI is hot, but it’s not rotten to the core.” Fed Governor Christopher Waller said Monday he wanted “several months of lower readings” to be convinced inflation is really falling. One month doesn’t end the argument. Reuters
Fed Chair Kevin Warsh’s prepared remarks didn’t give a clear rate signal for now. He said policymakers have “no tolerance for persistently elevated inflation.” Warsh pointed to strong capital spending: equipment investment climbed about 8% over the past year, and high-tech spending jumped almost 25%. He called it an investment boom that could keep real yields high even if inflation cools month to month. The market is looking for confirmation. Federal Reserve
But the risk can reverse fast. June inflation cooled as energy prices dropped when U.S.-Iran tensions eased for a short time. Brent crude climbed back above $86 a barrel Tuesday after more fighting and threats to shipping in the Strait of Hormuz. If pricier fuel seeps into services or shifts inflation expectations, traders might see higher odds of a September hike and real yields could rise further with a bigger inflation premium. That spells a tougher setup for both bonds and long-duration stocks.
Right now, a July hike looks unlikely, with the Fed’s next call set for July 29. Investors are still waiting for a clearer signal. The 10-year real yield ended Monday at 2.36%, and bond desks want to see that rate drop for more than just a single good CPI number. One print wasn’t enough for a pivot.
