NEW YORK: US Treasury yields plunged on Thursday after data showed inflation in the United States cooled in October, supporting expectations the Federal Reserve could slow its tightening pace.
The US 10-year yield dropped to a five-week low of 3.824%. It was last down 28.7 basis points (bps) at 3.855%, on pace for the largest daily fall since March 2009.
The U.S two-year yield, which reflects rate move expectations, slid to a more than one-week low of 4.29% and was last down 29 bps at 4.334%. The yield was on track for its biggest daily decline since September 2008.
Data showed the US consumer price index rose 0.4% in October after climbing by the same margin in September. Economists polled by Reuters had forecast the CPI would advance 0.6%. In the 12 months through October, the CPI increased 7.7% after rising 8.2% on the same basis in September.
Excluding the volatile food and energy components, core CPI increased 0.3% last month after gaining 0.6% in September. Economists expected core CPI to gain 0.6%.
The data are the strongest indication yet that inflation may be turning the corner, analysts said.
Stocks mostly up, dollar drops vs yen, yields fall following Fed decision
"It's a reset and 'confirmation' of expectations. The market had started to reprice Fed expectations after the Nov. 2 Fed meeting," said Kim Rupert, managing director, fixed income at Action Economics in San Francisco.
"The market is looking for signs that inflation is coming down. And the data may be the first indication that that is starting to happen. So that supports expectations that the Fed can start to slow rate hikes to 50 basis points next month and maybe the Fed will not have to go as high as the market projected after (Fed Chair Jerome) Powell's hawkish press conference," she added.
The rates futures markets have priced in a 73.5% chance of a 50-basis-point hike in December, and a 63.5% probability of an increase of the same magnitude in the February meeting.
The Fed's terminal rate, or the level at which interest rates would peak, fell to 4.85%. It was at 5% and higher last week.
"The better-than-expected 0.3% (month-on-month) increase in core consumer prices in October won't on its own persuade the Fed to drop its hawkish stance," Paul Ashworth, chief North American economist at Capital Economics, wrote in a note after the data.
"But we expect this to mark the start of a much longer disinflationary trend that we think will convince the Fed to halt its tightening cycle early next year, with the policy rate peaking at 4.50% to 4.75%, and to begin cutting rates again before the end of 2023," he added.
Later on Thursday, the US Treasury will auction $21 billion in 30-year bonds.