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U.S. Treasury yields fell on Wednesday after a key inflation reading for May came in below expectations.
The yield on the 10-year Treasury dropped 14 basis points to 4.264%. The 2-year Treasury yield sank nearly 15 basis points to 4.689%.
Yields and prices have an inverted relationship and one basis point is equivalent to 0.01%.
The move in yields came after the May consumer price index came in below expectations. The reading showed that CPI was flat month over month in May and up 3.3% year over year. Economists surveyed by Dow Jones expected a monthly gain of 0.1% and 3.4% year over year.
The core CPI, which excludes volatile food and energy prices, showed a slightly hotter price increase but was also below expectations.
The inflation report comes as the Federal Reserve is in the middle of its latest policy meeting.
The Fed is expected to keep interest rates unchanged on Wednesday as the meeting concludes. But investors will be closely watching the central bank’s guidance and the post-meeting press conference for fresh clues about what the path ahead for interest rates could look like.
Fed fund futures indicated traders were putting the odds of an interest rate cut in September at about 70% following the CPI data, up from even odds a day before. Futures now showed the market pricing in a 74% chance of a second cut by the end of the year. Traders were still predicting no change at Wednesday’s meeting or in July.
The central bank is also due to release its quarterly economic projections on Wednesday, which will provide insights into policymakers’ expectations for the economy and monetary policy — including how many interest rate cuts they anticipate this year.
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