Swap pricing showed expectations for the effective fed funds rate in December to be nearly a half point below the current 4.83 per cent level.
Bond traders added to wagers that the Federal Reserve will cut interest rates before the end of this year afterSwaps linked to Fed meetings reflect an approximately 80 per cent chance of a quarter-point increase next month following consumer-price data released on Wednesday, after that probability fell to a little over two-in-three earlier.
Bets on easier policy by year-end did fade from extremes seen earlier in the session, triggering a rebound in Treasury yields as well. Two-year yields were little changed around 4.02 per cent after plunging as much as 15 basis points right after the CPI report. “Inflation is still high, but it has peaked and if shelter is turning, some of the pressure on the Fed to keep hiking will decline,” said Priya Misra, global head of rates strategy at TD Securities.
The year-on-year increase in the CPI measure fell to 5 per cent from 6 per cent. That was below economist estimates of 5.1 per cent. A core measure that strips out food and energy came in at 5.6 per cent, up from the prior month reading of 5.5 per cent, but in line with economist estimates.
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