Advisors taking close note of 10-year Treasury yield in wake of latest inflation data

It may not be moving a lot, but a lot of advisors are keeping a close eye on the benchmark 10-year Treasury note in the wake of Friday’s inflation data.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.4% after an unrevised 0.2% gain in November, the Commerce Department's Bureau of Economic Analysis reported last week. In the 12 months through December, core PCE inflation rose 3.0% after increasing 2.8% in November.

The inflation data, which was delayed due to the government shutdown and is well known to be a favorite Fed data point, topped Wall Street’s forecast of 0.3%. The U.S. central bank has maintained a 2% inflation target. January's PCE inflation data will be released on March 13.

In reaction to the higher-than-expected PCE number, the 10-year Treasury yield budged a basis point higher to 4.08% on Friday to almost exactly where it stood back in September when the Federal Reserve started cutting rates. Nevertheless, even the tiniest tick upward suggests the Federal Reserve may stay on the sidelines longer than expected despite rising employment worries. The 10-year Treasury note started 2026 yielding 4.16%.

With the 10‑year Treasury yield hovering near 4%, Sam Diarbakerly, founder and private wealth advisor at Generation Capital Advisors, is approaching the situation with “discipline rather than emotion.” He is taking a balanced approach to fixed income, deliberately maintaining a barbell strategy across short-duration and intermediate exposures rather than making binary duration bets.

“With yields near 4%, we are incrementally comfortable adding duration, but we are not making an aggressive directional call. From a historical standpoint, a 4% 10-year offers a far more attractive starting point than the suppressed yields investors endured for most of the past decade. The forward return profile for high-quality bonds is meaningfully improved when starting yields are higher,” Diarbakerly said.

Stressed Diarbakerly: “We are not extending duration recklessly, nor are we hiding entirely in cash. We are building resilience.”

Elsewhere, Spencer Carlson, managing partner at Chappell Wealth Management, a Sanctuary Wealth partner firm, is maintaining a neutral duration posture. Treasuries are not a tactical rate call in his portfolios, instead serving a “structural” role.

“Over long horizons, intermediate Treasuries have delivered positive real returns with materially lower volatility than equities but without moving in lockstep with them. They’re attractive diversifiers. We don’t see tremendous value in getting tactical with duration when the evidence suggests that short-term rate movements are not reliably predictable,” Carlson said.

Similarly, Mike Martin, vice president of market strategy at TradingBlock, is staying neutral for now. However, if the 10-year pushes closer to 4.5%, he will likely start adding duration as compensation improves so long as inflation remains the same or drifts lower. 

“First and foremost, Treasuries serve as downside protection. Both equity valuations and geopolitical uncertainty are approaching meteoric levels, so some volatility feels inevitable, and getting paid to wait is an added bonus,” Martin said.

WHAT’S NEXT FOR THE FED? AND THE 10-YEAR?

Regarding the recent core PCE reading and the market’s reaction in the 10-year, Generation Capital’s Diarbakerly says his outlook is not driven by a single data print. Instead, he focuses on trend direction and financial conditions.

“If core PCE confirms continued disinflation and the 10-year stabilizes or drifts lower, that supports maintaining our balanced barbell with a slight bias toward adding intermediate duration on weakness. If inflation re-accelerates and yields move materially higher, we would likely use that as an opportunity to add selectively rather than retreat,” Diarbakerly said.

For the first half of the year, he expects the Fed to remain data-dependent and cautious. In his view, the hurdle for aggressive rate cuts remains high unless labor markets weaken meaningfully. As a result, he is positioned for higher-for-longer policy bias, gradual disinflation and slower, but not recessionary, growth. In that environment, high-quality fixed income is no longer a drag, according to Diarbakerly, it is an asset class with legitimate carry and defensive characteristics.

“The key is balance. We are not attempting to predict every basis point move in the 10-year. We are constructing portfolios that can withstand multiple paths forward, while capturing attractive income and maintaining optionality. That is the difference between trading rates and managing capital,” Diarbakerly said.

Chappell’s Carlson says his Fed outlook remains unchanged.

“The Fed’s dual mandate requires balancing inflation and labor market conditions, and recent data continues to send mixed signals. Inflation has moderated meaningfully from its peak, but it has not fallen decisively to target. Labor conditions appear resilient. Given that backdrop, we expect continued caution from the Fed regarding rate cuts in spite of political pressures,” Carlson said.

That said, he says his bond allocations are not contingent on near-term policy decisions.

“Treasuries play a structural role in portfolios independent of whether rate cuts occur in the next few meetings,” Carlson said.