Traders working on the floor at the New York Stock Exchange

NYSE

Investors got a reprieve on Thursday as the bond market regained its footing following a global sell-off earlier in the week.

A rout in global bonds on Tuesday that sent yields spiking was partly reversed on Thursday, with investors cheering as US Treasury yields dropped from multi-year highs. The move appeared to be largely driven by dovish comments from Federal Reserve Governor Chris Waller, who said he’d be “inclined to support” keeping rates unchanged when officials meet later this month, barring any nasty surprises in the coming consumer inflation report.

Expectations for a rate hike this month sank, with investors dialing odds down to 50%, from 63% on Wednesday, according to the CME FedWatch tool.

In separate remarks, New York Fed President John Williams said recent inflation data had been “encouraging” and chalked up the latest spike in yields as a “reflection of the strength of the economy”, which also helped boost sentiment among investors.

The 2-year US Treasury yield, which is most sensitive to Fed policy, slid 5 basis points to 4.33%.

The 10-year Treasury yield pulled back 4 basis points to 4.75%. The yield rose as high as 4.81% on Wednesday, the highest level since 2023.

US stocks rallied on the recalibrated rate views. The Dow advanced as much as 600 points, on track for its best day in a month. The S&P 500 and Nasdaq 100 also gained more than 1% as traders scooped up risk assets.

Here’s where US indexes stood shortly after 1:00 p.m. ET:

The sell-off in bonds has been driven by of concerns about macroeconomic forces like the US deficit and hotter inflation. Higher yields signal both an expectation for higher interest rates as well as the fact that investors are more hesitant to hold Treasurys in the current macro climate, meaning yields need to rise to entice buyers of new bonds.

Waller’s comments about disinflation have shifted the tone in markets, economists at Goldman Sachs wrote about the Fed Governor’s comments in a note on Thursday.

“The bond market read Waller’s speech as dovish,” the bank said, adding that it expected the Fed to “remain on hold” for interest rate changes in September.

“The remarks point to a Fed hold at the September FOMC meeting, contingent on continued disinflation and with a clear warning that a hot August CPI inflation print would reopen the door to a rate hike,” Gregory Daco, the chief economist at EY, wrote in a note. “He sees little urgency to adjust rates while growth remains firm, the labor market is in ‘satisfactory shape,’ and disinflation continues to progress.”

Inflation remains a lingering concern for markets, particularly as the Iran war drags on and oil prices tread closer to the critical $100-a-barrel mark. Brent crude, the international benchmark, rose as much as 1% to trade around $96 a barrel on Thursday before paring its gains.

Investors are awaiting August inflation data, a critical input for the Fed’s next rate decision, next week.

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Jennifer Sor is a senior reporter at Business Insider. She covers financial markets and the economy, with a focus on retail investing, job trends, and the pursuit of wealth. She regularly speaks to famed forecasters and top investors in markets, and her work has been referenced in outlets such as CNN, Forbes, and Bloomberg Opinion’s “Money Stuff.”  She also regularly appears on television and radio to speak about markets and the US economy.Prior to her time at Business Insider, Jennifer covered tech and business news at the San Francisco Chronicle and Los Angeles Business Journal. She graduated from the University of California, Santa Barbara with a bachelor’s degree in economics and English.Have an interesting story to share? Please reach out to her at jsor@businessinsider.com or @jennreports.81 on the encrypted messaging app Signal.