(Bloomberg) — Treasury two-year yields dropped to the lowest level since May as a surprise decline in producer prices reinforced bets on Federal Reserve rate cuts this year.
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Traders are pricing in an about 80% chance of a Fed reduction in March — up from a little over 50% a week ago. Friday’s economic data came a day after a hotter-than-estimated reading on consumer prices — underscoring the bumpy path officials face in bringing inflation to the 2% target. Investors also sifted through bank results as the US earnings season kicked off, while watching geopolitical developments ahead of Monday’s Martin Luther King Jr. Day.
“We suspect there is little to dissuade the market from pressing the March cut trade,” said Ben Jeffery at BMO Capital Markets. “Let us not forget the geopolitical escalations in the Red Sea and the implied headline risk —…
