Inflation peak signals strengthen, market no longer fully prices in Fed rate hikes this year

Odaily News As falling oil prices reinforce optimism about the inflation outlook, bond traders have stopped fully pricing in a Fed rate hike this year. The U.S. Treasury market rally pushed yields down by as much as 9 basis points across maturities, with the 30-year yield falling 8 basis points ahead of Thursday's new issue sale of that tenor. The sale is expected to post the highest yield for a 30-year Treasury issuance since 2001. Benchmark oil prices fell more than 3% on Thursday, and oil has been the main driver of Treasury yields since the U.S. struck Iran at the end of February, triggering a supply shock, with traders parsing signals about the ongoing conflict.

The drop in oil prices has reinforced optimism that U.S. inflation has peaked. U.S. government data released on Thursday showed producer prices slowed in July, following a consumer price report the previous day that also detected slowing inflation for a second consecutive month. Rising short-term rate contracts pushed interest rates lower, indicating that traders are scaling back their bets on Fed rate hikes. (Jinshi)