U.S. bonds strengthened after U.S. CPI cooled, and the market lowered bets on a Fed rate hike in July to 20%
U.S. Treasuries rose after U.S. consumer price data came in below expectations and traders trimmed bets on the Federal Reserve raising interest rates in the near term. The two-year U.S. Treasury yield, which is sensitive to the outlook for the Fed's recent monetary policy, fell as much as 14 basis points to 4.14%, the biggest one-day drop since February. Pricing in the interest rate swap market shows that the probability of the Fed raising interest rates later this month has dropped from 40% to about 20%. The data came as a relief to bondholders and U.S. policymakers. Previously, Fed policymakers have been weighing the need to act quickly to bring inflation back near the Fed's 2% target. Earlier this week, renewed war between the United States and Iran pushed up oil prices, prompting traders to increase bets on the Federal Reserve raising interest rates in July. "This is a broad-based downside surprise," said Dan Carter, senior portfolio manager at Fort Washington Investment Advisors. "Short-term interest rate hikes are no longer on the table. The market has been worried about hot inflation data, so this should be positive for bonds and re-steepen the yield curve. Our base case is that the Fed will keep interest rates unchanged. This data supports this judgment." Open a futures account on Sina's cooperative platform, safe, fast and guaranteed