The US CPI data was lower than expected, and the two-year US Treasury yield fell 14 basis points to 4.14%. The interest rate swap market showed that the probability of the Federal Reserve raising interest rates in July decreased from over 40% to about 20%. Dan Carter, Senior Portfolio Manager at Fort Washington Investment Advisors, stated that the possibility of raising interest rates in the short term no longer exists. The data is positive for the bond market and has caused the yield curve to steepen again. The benchmark expectation is that the Federal Reserve will maintain interest rates unchanged.
AI interpretation: The unexpected drop in inflation data directly shattered the market's concerns about short-term interest rate hikes, completely reversing the pricing logic of tightening expectations. The significant decline in US bond yields reflects a strong consensus among funds regarding the shift in monetary policy, and the market has completely shifted its focus to the benchmark assumption of maintaining interest rates unchanged. This data effectively alleviates interest rate pressure and provides clear upward momentum for the bond market. The certainty of the Federal Reserve's policy path has increased, and the market's focus on the high interest rate environment has substantially shifted.
