US Inflation Data Fails to Resolve Wall Street Doubts; Bond Market Sees Roughly 50% Chance of September Rate Hike

After US inflation data came in mild, traders maintained positions hedging against a potential rate hike by the Federal Reserve at its September meeting, with current market pricing indicating roughly a 50% probability of a hike. The Consumer Price Index released on Wednesday met expectations, helping US Treasuries sustain their rally. The yield on the two-year US Treasury note, most sensitive to changes in Fed policy, fell 3 basis points to 4.18%, while the benchmark 10-Year Yield also dropped 3 basis points to 4.65%. Interest rate swaps show that, following the release of economic data, traders reduced the probability of an October rate hike from about 75% the previous day to approximately 60%. The market has fully priced in the Federal Reserve’s next move in December.