Over the past week, markets continued along a broadly stable path. Bond markets were shaped by a familiar, though still delicate, mix of macroeconomic data, central bank expectations and geopolitical uncertainty. After a slightly more volatile start to the year, investors continued to reassess the outlook for growth and inflation, with US Treasuries and EGBs responding to incremental data surprises rather than any single decisive catalyst. As ever, Bunds remained the focal point, anchoring broader euro area rates sentiment.

In the US, attention centered on inflation and labor market releases. The latest CPI print showed inflation broadly stable, with headline inflation holding near recent levels of 2.7% YoY and core inflation coming in slightly softer at 2.6% YoY, broadly in line with market expectations. While the data reinforced the idea that inflation is no longer accelerating, it also failed to provide a clear signal that price pressures are easing quickly enough to justify rate cuts as early as the next Fed meeting. As a result, longer-dated Treasury yields found some support, while the front end reflected a modest scaling back of near-term easing expectations.

Labor market data added further nuance. December’s jobs report came in weaker than anticipated, with job creation undershooting consensus estimates. Although the unemployment rate edged lower, the soft headline number reignited debate around a cooling labor market and a gradual loss of economic momentum. From a rates perspective, the combination of steady inflation and softer employment once again reinforced the view that the Fed can afford to remain patient, pushing expectations for the first rate cut later into the year rather than acting pre-emptively.

Across the Atlantic, European fixed income markets were influenced primarily by developments in Germany. The 10-year Bund yield traded near the upper end of its recent range, showing signs of stabilization after earlier upward pressure. Euro area inflation continues to hover close to the ECB’s target, but underlying price dynamics remain uneven across member states, reinforcing the ECB’s cautious, data-dependent stance. At the same time, domestic fiscal considerations in Germany played an important role. Ongoing debate around government spending, particularly related to defense and infrastructure, has kept investors focused on future bond supply and term premium dynamics. These concerns were reinforced on Friday when the European Commission endorsed the national defense plans of eight member states, marking a concrete step in Europe’s broader push to strengthen its security framework. The approved countries will be entitled to around €38 billion once loan agreements are finalized. While the immediate market reaction was muted, the announcement underlined a structural shift toward higher public investment and increased issuance, contributing to modest upward pressure on longer-dated Bund yields.

Geopolitical developments also remained a background driver of sentiment. Renewed tensions between Iran and the US, including heightened rhetoric and concerns around potential escalation in the Middle East, briefly boosted demand for safe-haven assets. These episodes supported Treasuries and core European bonds intraday, while risk assets showed sensitivity to headlines, particularly in energy markets. However, the absence of a direct escalation kept moves contained, reinforcing the broader theme of range-bound trading rather than a sustained flight to safety. Overall, the past week highlighted a market environment still dominated by balance rather than conviction. Inflation is no longer the primary upside risk but remains sticky enough to restrain aggressive easing expectations. Growth signals are softening but not deteriorating sharply. Against this backdrop, bond markets continue to trade on marginal shifts in data, fiscal narratives and geopolitical headlines.