Cooling Inflation Data Boosts Stocks and Bonds

As inflation data begins to cool, investors are seeing a boost in both stock and bond markets. The iShares Core U.S. Aggregate Bond ETF (AGG) and Vanguard Total Bond Market ETF (BND) have each dropped around 1% so far this year through Tuesday, FactSet data show. Longer-term bond funds are more badly bruised in 2025, with the Vanguard Long-Term Treasury ETF (VGLT) and iShares 20+ Year Treasury Bond ETF (TLT) each slumping more than 2%. This suggests that the bond market has been negatively affected by the recent jump in Treasury yields. However, it is also noted that longer-term bond funds are most affected by a decrease in inflation, as they are more sensitive to changes in interest rates.



The yield on the 10-year Treasury note BX:TMUBMUSD10Y has climbed toward 5%, a jump that has rattled the U.S. stock market and hurt prices of fixed-income assets. A confluence of investor worries have driven up Treasury yields recently, with investors closely watching the 10-year rate ahead of potentially market-moving inflation data due out Wednesday. This has led to a decline in the prices of bond funds, particularly those with longer durations.



However, the cooling inflation data has also had a positive impact on the stock market. As inflation decreases, the cost of borrowing for companies becomes cheaper, allowing them to invest more in research and development, expansion, and other growth initiatives. This can lead to increased earnings and higher stock prices over time. Additionally, lower inflation can lead to a more stable economic environment, which can boost consumer confidence and spending, further benefiting companies.



In conclusion, the cooling inflation data has had a positive impact on both the stock and bond markets. While the bond market has seen a decline in prices, particularly for longer-term funds, the stock market has seen a boost in prices as companies benefit from lower borrowing costs and a more stable economic environment. Investors should continue to monitor inflation data and adjust their portfolios accordingly to take advantage of these trends.