CPI Miss Sends Fed Hike Odds Down to 20%, Treasuries Rally

ME News reported on July 14 (UTC+8) that softer-than-expected U.S. consumer price data prompted traders to cut wagers on another Federal Reserve rate increase, sparking a sharp rally in U.S. Treasuries. The 2-year Treasury yield—seen as especially sensitive to expectations for the Fed's near-term policy path—fell as much as 14 basis points to 4.14%, its biggest one-day drop since February. Pricing in interest-rate swaps showed the implied probability of a July rate hike sliding from above 40% to about 20%. Dan Carter, Senior Portfolio Manager at Fort Washington Investment Advisors, said the report represented a broad-based miss across the data and removed the case for a near-term hike. He added that markets had feared inflation would print higher, so the latest reading should support bonds and help re-steepen the yield curve. Carter said his base case remains that the Fed keeps rates unchanged, and the data reinforces that view. (Jinshi) (Source: ODAILY)