Bond Market Bounces as Fed's Waller Signals Rate Pause, Stocks Rally 600+ Points

A brutal global bond sell-off earlier in the week found relief on Thursday after Federal Reserve Governor Chris Waller signaled he'd lean toward holding interest rates steady at the Fed's upcoming September meeting — as long as the next inflation report doesn't deliver a nasty surprise. The dovish pivot in tone was enough to send Treasury yields retreating from multi-year highs, with the 10-year yield pulling back from Wednesday's peak of 4.81% — its highest since 2023 — to 4.77%. The more policy-sensitive 2-year yield dropped 4 basis points to 4.34%.

Markets responded decisively. The Dow Jones surged more than 600 points, its best single-day gain in a month, while the S&P 500 and Nasdaq 100 each climbed over 1% as traders rotated back into risk assets. Odds of a September rate hike collapsed from 63% on Wednesday to 50% by Thursday, according to CME FedWatch data — a significant repricing that reflected how much weight markets assign to Fed officials' public comments.

New York Fed President John Williams added to the calmer mood, describing recent inflation data as 'encouraging' and framing the yield spike not as a warning sign but as a reflection of underlying economic strength. Goldman Sachs economists echoed this read, noting the bond market interpreted Waller's speech as clearly dovish and expecting the Fed to stay on hold in September. EY chief economist Gregory Daco cautioned, however, that a hot August CPI print next week could quickly reopen the door to a hike.

Underpinning the week's volatility is a cocktail of macro anxieties: a ballooning US fiscal deficit, sticky inflation expectations, and oil prices creeping toward the psychologically significant $100-a-barrel threshold. Brent crude touched $96 a barrel Thursday, partly driven by the ongoing Iran conflict. Treasury yields have been climbing not just on rate expectations but also because investors are demanding higher returns to hold US debt in an uncertain environment — a dynamic that won't resolve until the fiscal and inflation picture becomes clearer.