Treasure yields (^FVX, ^TNX, ^TYX) are tracking 15-month lows after August's Consumer Price Index (CPI) gave the Federal Reserve more data to consider as it moves toward its first interest rate cut. Newton Investment Management head of fixed income Ella Hoxha joins Catalysts to discuss the bond market's outlook when interest rates start to fall.

"Bond markets have got accustomed to seeing lower inflation prints of late. And so typically, an inflation print that's in line to slightly higher is probably seen as a tiny, hawkish surprise. I mean, I don't want to overplay it, but, that's one explanation for the initial reaction," Hoxha tells Yahoo Finance.

She explains that price action has been reversing after a "busy supply period of bond markets, particularly on the corporate sector side," and adds that it is "quite healthy" for bonds.

Hoxha notes that the biggest beneficiary position for bonds is in the front end of the curve, and points to the rally of two-year bonds outperforming ten-year bonds. She explains that the disinversion of the yield curve has been an "important pivot point" for bond markets, which signals a potential economic slowdown ahead.

She believes that the curve will continue to steepen, saying that she is closely watching jobs data as it has indicated a slowing of the economy. She adds, "We're certainly more on the camp that believes growth will surprise on the downside towards the end of this year or beginning of next year."

"You can see the nervousness creeping in in markets, particularly as what the curve is telling you and what commodities are telling you is that we are heading for the slowdown. But credit markets and equity markets haven't so far agreed. I think we're tentatively seeing signs that that might be reversing, and therefore, it's quite an important time in financial markets as far as this year goes," she concludes.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl