U.S. Treasury yields tumbled Thursday after the latest inflation data showed a dip last month, suggesting the Federal Reserve could start to lower interest rates this year.
The yield on the 10-year Treasury fell 7.4 basis points at 4.205%. The 2-year Treasury yield pulled back 11.9 basis points to 4.511%.
Yields and prices move in opposite directions and one basis point equals 0.01%.
The June consumer price index, which measures the costs for a basket of goods and services, slid 0.1% from the prior month, according to the Labor Department on Wednesday. That pushed the 12-month rate to 3%, or its lowest level in more than three years.
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Economists surveyed by Dow Jones were expecting June's CPI to reflect a 0.1% rise on a monthly basis and 3.1% from a year earlier.
Core CPI, which excludes volatile food and energy prices, rose 0.1% on a monthly basis and 3.3% from the year-ago period. The consensus forecast was for increases of 0.2% and 3.4%, respectively.
Wall Street is hoping an improvement in inflation will mean the Fed can start to ease monetary policy as soon as this fall. Odds of a September rate cut rose to greater than 80% based on fed funds futures trading following the CPI data, according to the CME FedWatch Tool. Traders still see the Fed standing pat at its meeting later this month.
Money Report
"July is still a longshot, but today's Fed-friendly CPI got markets one step closer to a September rate cut," wrote Chris Larkin, managing director at E-Trade from Morgan Stanley. "A lot can happen between now and September 18, but unless most of the numbers pivot back into 'hot' territory, the Fed's reasoning for not cutting rates may no longer be justified."
Investors also weighed comments Federal Reserve Chair Jerome Powell made on Capitol Hill this week. While Powell did not give a clear indication when rates could be cut, he raised concern that keeping them too high for too long could hurt the economy.
— CNBC's Jeff Cox contributed to this report.
