CPI data came in below expectations, and the market's bet on a Fed rate hike in July dropped to 20%

Odaily News Affected by lower-than-expected consumer price data, traders have been pulling back on bets of a Federal Reserve rate hike, driving a sharp rally in U.S. Treasury prices. The yield on the two-year Treasury note, which is highly sensitive to the near-term outlook for Fed policy, fell as much as 14 basis points to 4.14%, marking its biggest single-day decline since February. Meanwhile, interest rate swaps show the probability of a Fed rate hike in July has fallen to around 20% from over 40% previously.

Dan Carter, senior portfolio manager at Fort Washington Investment Advisors, said: "This is a data miss across the board. The possibility of a rate hike in the near term is off the table. The market had been worried about inflation data coming in too high, so this reading should be good for the bond market and help re-steepen the yield curve. Our base case is that the Fed will hold rates steady, and this data confirms that view." (Jinshi)