(Bloomberg) — The rout in US government debt extended slightly on Tuesday, with longer-dated yields at the highest levels since late July and inflation data later in the week expected to enable Federal Reserve interest-rate cuts.

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While most yields were slightly higher on the day, short maturities most sensitive to changes in Fed policy were little changed as bets on additional rate cuts stabilized after a hawkish repricing in recent days. Earlier, the two-year yield fell as much as six basis points to 3.94%. Ten (^TNX)- and 30-year (^TYX) yields rose by less than three basis points to the highest levels since July 31.

Strong jobs data at the end of last week shocked traders betting on another big cut from the Fed this year and revived concern inflation could reignite. Now investors are looking ahead to Thursday’s consumer prices data, which are expected to show deceleration.

“Rates investors do believe a more proactive Fed today means a better economy tomorrow,” warranting higher long-term yields, Mark Cabana, head of US rates strategy at Bank of America, told Bloomberg Television. Still, a 10-year yield in the 4% to 4.25% range presents a buying opportunity as the Fed “is almost certainly going to cut to 4% regardless of the data.”

In the meantime though, the Treasury Department’s auctions of three- and 10-year notes and 30-year bonds from Tuesday to Thursday may render investors cautious. The $58 billion three-year auction at 1 p.m. New York time is poised to draw a yield near 3.90%, higher than the last two monthly sales of the tenor.

Traders are wagering on around 50 basis points of easing from the US central bank by the end of the year, with less than 150 basis points of easing priced in through October 2025. That’s down from expectations for about 200 basis points of reductions in late September.

US bonds tumbled on Monday, hoisting key yields above the level of 4% last seen in August. The scaling-back of Fed expectations poured cold water on a bond-buying frenzy that helped Treasuries clock five straight monthly gains.

“The market did get a bit ahead of itself in pricing Fed cuts,” said Patrick Armstrong, chief investment officer at Plurimi Wealth on Bloomberg TV. “I do think in 2025 inflation will likely become a problem again.”

Attention is returning to inflation trends, with Fed Governor Adriana Kugler saying the US central bank should keep its focus on bringing inflation back to its 2% target and that she “strongly supported” last month’s half-point reduction. Meanwhile, Federal Reserve Bank of St. Louis President Alberto Musalem cautioned that further reductions should be gradual.

—With assistance from Michael Mackenzie.

(Adds strategist comment in fourth paragraph, updates yield levels)

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