10-year T-note yields tumbled Tuesday after U.S. consumer prices in October fell more than expected, bolstering speculation the Fed was finished with its rate hike cycle and may even cut interest rates in early 2024. U.S. Oct CPI eased to +3.2% y/y from +3.7% y/y in Sep, better than expectations of +3.3% y/y. Also, Oct CPI ex-food and energy eased to +4.0% y/y from +4.1% y/y in Sep, better than expectations of no change at 4.1% y/y and the smallest increase in over two years.
The 10-year T-note yield fell to a 1-3/4 month low today at 4.424%, a sharp reversal from the surge in the 10-year T-note yield last month to a 16-year high of 5.019%. The easing price pressures removed the chances of a Fed rate hike this year and accelerated the timing of a Fed rate cut in 2024. The markets are now pricing in more than 50 bp of rate cuts by July of next year, about double the amount anticipated at the end of last month. Schroders Plc said, “It doesn’t matter now what the Fed says about holding rates higher for longer. It’s likely to start a gradual easing cycle in the first half of 2024.”
