Treasuries Gain as US Inflation Data Bolsters Fed-Cut Bets

Treasuries gained across the curve as softer-than-forecast US inflation data led traders to step up bets that the Federal Reserve will cut interest-rate next year.

The two-year yield, the most sensitive to changes in Fed policy, fell about four basis points to 3.44%, its lowest level since October. The 10-year yield also fell about four basis points, to 4.11%, while a Bloomberg gauge of the dollar touched the day’s low.

Consumer-price data released Thursday, complicated because of the US government shutdown, showed that underlying US inflation in November rose from a year earlier at the slowest pace since early 2021. The overall figure climbed 2.7% year-over-year, compared to a median forecast of 3.1%.

Tom di Galoma, managing director at Mischler Financial Group, said the report “should put a nice bid in bonds and will placate those who have been advocating inflation is sticky.”

The Fed will need to “open the door for further rate cuts,” di Galoma added.

The central bank cut rates a quarter-point last week for the third straight time to support the economy. For its next policy decision in January, swaps are pricing in about six basis points of easing, or about a 22% chance of a quarter-point cut — slightly higher than before the release.