Svmuu News: As consumer price data came in below expectations, traders pulled back on their bets on a Fed rate hike, driving U.S. Treasury prices sharply higher. The yield on the two-year Treasury note—which is highly sensitive to the Fed’s near-term monetary policy outlook—fell as much as 14 basis points to 4.14%, marking its largest single-day drop since February. Meanwhile, the interest rate swap market indicates that the probability of a Fed rate hike in July has fallen from over 40% to about 20%.
Dan Carter, senior portfolio manager at Fort Washington Investment Advisors, said, “This was a broadly weaker-than-expected data release. The possibility of a rate hike in the near term has vanished. The market had previously been concerned that inflation figures would be too high, so this data should be positive for the bond market and prompt the yield curve to steepen again. Our baseline expectation is that the Federal Reserve will keep interest rates unchanged, and this data confirms that view.” (Jin Shi)