FX.co ★ US Treasury Yields Fall After Soft CPI Report

The yield on the US 10-year Treasury fell below 4.09% on Friday, its lowest level since early December, after a softer-than-expected CPI report strengthened expectations for Federal Reserve rate cuts this year. The annual headline inflation rate slowed to 2.4% in the latest reading, down from 2.6% in each of the prior two months and below the consensus forecast of 2.5%. On a monthly basis, consumer prices rose 0.2%, easing from 0.3% and undercutting expectations for an unchanged pace.

In response, traders increased their projections for total Fed easing in 2024 to 61bps, up from 58bps before the release. The perceived likelihood of a rate cut at the April meeting climbed, while pricing for December now reflects roughly even odds of a rate reduction versus a pause. Markets continue to see the highest probability of a 25bps cut in June, followed by another in September. For March, investors still largely anticipate that the Fed will keep interest rates on hold.