Several Fed officials have in recent weeks flagged concerns about inflation pressures while playing down any labor market worries. On Monday, Federal Reserve Governor Christopher Waller said the central bank may need to raise interest rates "in the near term" if coming data show inflation continuing well above the central bank's 2% target.
Fed Chairman Kevin Warsh said in prepared comments on Tuesday to the U.S. House of Representatives Financial Services Committee that the central bank "has no tolerance for persistently elevated inflation."
Rate-hike odds and Treasury moves
The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 3.7 basis points, on pace for its biggest daily drop since June 24, to 4.573%, after falling to 4.526%.
Expectations for a rate hike of at least 25 basis points from the Fed at its July 28-29 meeting tumbled to 13.4% from 41.7% in the prior session, according to CME Group's FedWatch tool. For the central bank's September 15-16 meeting, markets are pricing in a 58.1% chance of a hike, down from 75.1% on Monday.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 38 basis points.
The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 7.2 basis points to 4.191% after dropping to 4.147%, and was on track for its biggest daily decline since May 26.
Treasury yields fall after softer-than-expected CPI
NEW YORK, July 14 (Reuters) - U.S. Treasury yields fell on Tuesday after data showed consumer inflation slowed more than expected in June, denting market expectations for a near-term rate hike from the Federal Reserve.
The Labor Department said the Consumer Price Index increased 3.5% in the 12 months through June after surging 4.2% in May, the largest year-on-year rise since April 2023. On a monthly basis, CPI fell 0.4% after a 0.5% increase in May. Economists polled by Reuters had forecast the CPI would rise 3.8% on a year-over-year basis and dip 0.1% on a monthly basis.
"The more important thing for consumer sentiment is that energy number. Regular unleaded gasoline prices were still up more than 27% from a year ago even with the 10% drop in prices in June," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
"Headline CPI is hot, but it's not rotten to the core."
Oil prices climb and inflation breakevens move lower
Energy prices have come down in recent weeks on expectations that a durable peace deal could be reached between the U.S. and Iran. However, hostilities have intensified in recent days and caused a reversal in crude prices.
U.S. crude CLc1 rose 3.28% to $80.70 a barrel and Brent LCOc1 climbed to $86.91 per barrel, up 4.35% on the day. The two benchmarks touched four-week highs after the U.S. reimposed a naval blockade of Iran and as renewed attacks between Washington and Tehran exacerbated supply concerns.
The yield on the 30-year bond US30YT=TWEB shed 0.7 basis point to 5.091% after dropping to 5.05%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.259% after closing at 2.329% on July 13.
The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.239%, indicating the market sees inflation averaging about 2.2% a year for the next decade.
TLT•
