CPI Data Below Expectations, Fed July Rate Hike Bets Drop to 20%

Odaily Planet Daily News: Affected by consumer price data coming in lower than expected, traders have withdrawn their bets on a Federal Reserve rate hike, driving a significant surge in U.S. Treasury prices. The yield on the two-year Treasury note, which is highly sensitive to the short-term monetary policy outlook of the Fed, once fell by 14 basis points to 4.14%, marking its largest single-day drop since February. Meanwhile, interest rate swap markets indicate that the probability of a Fed rate hike in July has dropped from over 40% previously to around 20%.

Dan Carter, senior portfolio manager at Fort Washington Investment Advisors, said: "This is a data release that fell short of expectations across the board. The possibility of a short-term rate hike has vanished. The market had been worried that inflation data would be too high, so this data should be good for the bond market and prompt the yield curve to steepen again. Our baseline expectation is that the Fed will keep interest rates unchanged, and this data confirms that view." (Jin Shi)