Treasury yields fell across the board on Tuesday, led by 2- and 3-year rates, after November’s consumer-price index report produced a modest rise in inflation and raised hopes that the worst spell of price gains in four decades is receding.
What’s happening
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The yield on the 2-year Treasury
TMUBMUSD02Y,
4.172%
fell to 4.147% from 4.401% on Monday. Yields move in the opposite direction to prices. The 2-year rate is on track for its biggest one-day decline since Nov. 10.
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The yield on the 10-year Treasury
TMUBMUSD10Y,
3.463%
retreated to 3.444% from 3.611% on Monday afternoon.
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The yield on the 30-year Treasury
TMUBMUSD30Y,
3.490%
fell to 3.482% from 3.575% late Monday.
What’s driving markets
The U.S. consumer-price index report for November, released on Tuesday, showed that the annual headline rate of inflation fell to 7.1 % from 7.7% in the prior month, marking the lowest level since the end of 2021. Economists had expected year-over-year CPI growth, which peaked at a four-decade high of 9.1% in June, to slip to 7.3% last month.
On a monthly basis, the cost of living rose a scant 0.1% in November, the latest in a string of mild readings that suggest the worst spell of U.S. inflation in 40 years is fading. Economists polled by The Wall Street Journal had forecast a 0.3% increase in the consumer-price index.
November’s CPI data further solidified the likelihood that the Fed will raise interest rates by 50 basis points to a range of 4.25% to 4.50% on Wednesday, according to the CME FedWatch tool. In addition, the chances of a 25-basis-point hike in February jumped to 62.5% from 35.1% a day ago, according to 30-day fed funds futures.
Benchmark bund yields
TMBMKDE-10Y,
1.907%
fell 5.8 basis points to 1.882% after a report showed that German inflation slipped in November from a more-than-70-year high.
In the U.K., the 10-year gilt yield BX:TMBMKGB-10Y rose 4.3 basis points to 3.243% following data that showed the unemployment rose in November but pay growth was accelerating.
The European Central Bank and the Bank of England are each forecast to lift interest rates by 50 basis points on Thursday.
What are analysts saying
“All the signs have been pointing toward slower inflation and now we have the confirmation. Jerome Powell spoke of downside in goods and that’s now pushing CPI downward. This is a good sign for the market, but isn’t likely to change the Fed’s outlook much. They’re still worried about high wages and housing costs. It’s not clear wages will drop, but faster-moving data suggests shelter is already moderating,” said David Russell, vice president of market intelligence at TradeStation Group.
“Today’s report suggests we’re on the road to a soft landing. The Fed will keep talking tough and probably inch up the dot plot tomorrow. But we seem to have turned a corner on inflation. Santa could be coming to town this year,” Russell wrote in an email.
