During Tuesday's trading, Treasury bonds experienced a significant decline, undoing the gains observed in the previous trading session. Early in the day, bond prices plunged and continued on a downward trend until closing. Consequently, the yield on the benchmark ten-year note swiftly rose by 14.4 basis points to 4.316 percent, given that yields and prices move in opposite directions.
The significant increase in the ten-year note yield saw it close at its highest level in over two months. This decline in Treasuries arose following the release of a highly anticipated report by the Labor Department, indicating that U.S. consumer prices in January saw a slightly larger increase than expected.
In January, according to the Labor Department, the consumer price index increased by 0.3 percent, a slight rise from December's 0.2 percent. This exceed economists' expectations, who anticipated a 0.2 percent increase.
Although the report revealed a slowing in the annual rate of consumer price growth, dropping to 3.1 percent in January from December's 3.4 percent, economists had predicted a decrease to 2.9 percent.
In January, excluding food and energy prices, core consumer prices escalated by 0.4 percent, compared to December's 0.3 percent increase. They were anticipated to increase by 0.3 percent. The annual rate of core consumer price growth remained steady at 3.9 percent, defying expectations of a slowdown to 3.7 percent.
According to the Federal Reserve, officials require more assurance of slowing inflation before lowering interest rates. This data has lessened hopes of an impending rate cut. CME Group's FedWatch Tool currently points to just an 8.5 percent likelihood of a quarter-point rate cut in March, with the possibility of a similar cut in early May falling to 35.3 percent.
According to Quincy Krosby, Chief Global Strategist for LPL Financial, this could be a disappointment to those hoping for a reduction in inflation, and thereby prompting the Fed to ease rates sooner. He commented, "This report highlights the Fed's stance that they require additional inflation-related data before policy transition. The most dovish faction of the FOMC also faces stubborn resistance."
Trading may be light on Wednesday due to a lull in U.S. economic activity. However, Thursday may see a flurry of activity due to an expected deluge of data.
