US Treasuries extended their rally for a second day, building on optimism that inflation has peaked. This sentiment is fueled by two consecutive readings of soft US inflation data. The implication is that the Federal Reserve may no longer need to pursue aggressive interest rate hikes.

The latest Consumer Price Index (CPI) report showed a moderation in price pressures. This follows earlier data that also indicated a cooling trend. The market is now pricing in a lower probability of further tightening by the Fed, which typically boosts demand for government debt.

This shift in expectations is a significant development for bond markets, which have been sensitive to inflation and monetary policy signals. A sustained decline in inflation could lead to a more stable interest rate environment, benefiting bond investors.