Treasury yields plummet after October CPI shows inflation easing by more than expected

Two- and 10-year Treasury yields headed for their biggest one-day declines in more than six months on Tuesday after October’s U.S. consumer price inflation report came in below expectations.

What’s happening

The yield on the 2-year Treasury
BX:TMUBMUSD02Y
dropped 18.6 basis points to 4.851% from 5.037% on Monday. At one point in New York’s session, it looked headed for its biggest one-day drop since May 4, according to preliminary figures from Dow Jones Market Data.
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
fell 18.9 basis points to 4.442% from 4.631% on Monday. The yield was on its way to the biggest one-day decline since March 17.
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
declined 13.7 basis points to 4.606% from 4.743% on Monday.
The 10- and 30-year yields were on their way to their lowest closing levels since at least Sept. 22.

What’s driving markets

Data released on Tuesday showed that the monthly headline rate of inflation from the October consumer price index was flat, while the annual headline rate fell to 3.2% from the 3.7% pace recorded for September.

Even the core measures, which strip out volatile items like food and energy, came in below the expectations of economists and Wall Street firms like Barclays, BNP Paribas, and BofA Securities.

The report rejuvenated traders’ hopes that the Federal Reserve can deliver at least four rate cuts next year.

What analysts are saying

“Inflation readings came in lower than expected, but the usual trouble spots – shelter, motor vehicle insurance, and personal care – still remain. Shelter has accounted for 70% of the increase in core prices over the past year and offset the 5% decline in gasoline prices during October,” said Greg McBride, chief financial analyst at Bankrate.

“The continued moderation of inflation will help keep the Federal Reserve on the sidelines. Any move in December seems highly unlikely, but stubbornly high core inflation will have the Fed keeping their options open into 2024,” he wrote in an email.

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