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Treasury Rally Masks a Market Trapped by Sticky Inflation

ADMIN || 22nd January 2026

US Treasuries have steadied after this week’s sharp selloff, but the pause looks more like consolidation following a bearish range break further out the curve.

While easing negativity toward US assets after President Trump backed down on Greenland tariffs helped arrest the immediate slide in sentiment, yields are elevated. Which reinforces the sense that the market has come to terms with the shift back into a higher-yield regime as the 10-year hovers near 4.25%.

That dynamic continues to tilt the path of least resistance toward higher yields and a steeper curve. Strong demand at the 20-year auction today underscores ongoing appetite for Treasuries, even against a bearish backdrop. End-users absorbed a sizable share of supply at yields just below the when-issued level, offering a vote of confidence in longer-dated duration. The combination of shallow retracement and resilient demand points to a market at peace with rates edging higher, leaving scope for duration yields to grind higher as optimism around growth and inflation resilience persists.

Looking at Thursday, the inflation backdrop continues to limit how far rallies in the front end can extend, as PCE data are expected to show incremental cooling at best. At the same time, claims look set to show labor-market data remain consistent with a “no-hire no-fire” environment, offering little support for an aggressive re-pricing of Fed cuts. With inflation risks still asymmetric and growth holding up, the intraday reversal in rates looks vulnerable to fading. Treasuries are exposed if calmer headlines give way to harder data realities.

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