Bond Rally Undercuts Inflation Fears

 Bond Rally Undercuts Inflation Fears

Monday’s sharp selloff in major U.S. stock indexes highlighted investors’ mounting concern that the biggest risk to markets right now is underwhelming growth, rather than the runaway price increases feared earlier in the year. At the same time, many investors think inflation readings may run hot for some period, then subside on their own or lead the Federal Reserve to raise interest rates and slow the economy.

Investors are still expecting a decent economic recovery. Both stocks and bond yields climbed Wednesday, extending their previous-day rebound. The Dow Jones Industrial Average rose 286.01 points, or 0.8%, to 34798.00, while the S&P 500 and Nasdaq Composite registered similar gains. All three major indexes remain near records.

Yields, though, have a long way to go to get back to their recent peaks. The yield on the benchmark 10-year U.S. Treasury note settled at 1.279% Wednesday, up from 1.181% Monday, when…

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