FX.co ★ Treasury Yields Fall Sharply after CPI

The yield on the US 10-year Treasury note fell about 6 basis points to 4.57% on Tuesday, pulling back from the two-month high of 4.62% reached in the previous session, as investors scaled back expectations for additional Fed tightening this year. Both headline and core inflation came in below forecasts, at 3.5% and 2.6%, respectively. Meanwhile, the CPI declined 0.4% from May, as the ceasefire between the US and Iran pushed down oil prices and eased inflationary pressures. Core CPI was unchanged from the previous month.

Following the data release, traders priced in a nearly 60% probability of a Fed rate hike in September, down from around 70% the day before. At the same time, the yield on two-year Treasuries, which are particularly sensitive to the near-term outlook for Fed policy, fell as much as 14 basis points to 4.14% and was on track for its biggest one-day decline since February.