Investors are awaiting key U.S. inflation data, leading to a decline in U.S. Treasury prices. This week, the Federal Reserve delivered hawkish signals, while escalating tensions between the U.S. and Iran pushed oil prices higher. The yield on the more policy-sensitive 2-year U.S. Treasury note rose by 2 basis points to 3.47%, and the 10-year yield increased slightly by 1 basis point to 4.07%. These minor movements suggest traders are hesitant to make large bets ahead of the release of U.S. December Core PCE inflation data—the Fed's preferred inflation gauge—and fourth-quarter GDP figures. Recent Fed meeting minutes indicated officials remain cautious about declaring victory over inflation. Consequently, any data released on Friday showing persistent price pressures or economic resilience could prompt traders to question the current market pricing of two 25-basis-point rate cuts this year. Christoph Rieger, Head of Rates and Credit Research at Commerzbank, noted this would contradict the "stalemate" scenario of "barely any inflation and exceptionally strong growth" depicted by U.S. President Donald Trump. He pointed out that the FOMC minutes have heightened the market's macroeconomic sensitivity. Concerns are growing that if price pressures remain strong, policymakers may keep interest rates elevated for longer or even implement further hikes. Portfolio managers at Invesco and Carmignac are shorting U.S. bonds, betting that economic resilience might not lead to rate cuts. Meanwhile, escalating tensions related to Iran and oil prices are adding to market uncertainty and challenging the disinflation narrative. On Friday, Brent crude prices held near their highest levels in nearly six months after Trump increased pressure on Tehran to reach a deal on its nuclear program. Other investors stated that the current uncertainty is prompting them to adopt range-bound trading strategies rather than bold directional bets. Fund managers, including Vanguard Asset Management Ltd., are cautious about aggressively pushing U.S. Treasury yields significantly higher or lower. On Thursday, a $9 billion auction of 30-year Treasury Inflation-Protected Securities saw strong demand. Ales Koutny, Head of International Rates at Vanguard, commented, "We see it as difficult for the 10-year yield to fall below 4%, but once it breaks above 4.25%, many buyers will emerge. We have been engaged in range trading previously with considerable success, but now we are near the lower end of the range, so I am inclined to slightly reduce exposure."