Traders' bets on Fed cut by June reinforced by softer inflation

Group 1 - Bond traders are increasingly expecting the Federal Reserve to lower interest rates by mid-year following a weaker-than-expected US inflation report [1][2] - Interest-rate swaps indicate that traders are pricing in a near certainty of a Fed rate cut by the June policy meeting, with minimal chances of action in January [2][3] - The core consumer price index rose by 0.2% from November, lower than the expected 0.3%, and on an annual basis, it increased by 2.6%, matching a four-year low [3][4] Group 2 - The Fed has cut rates three times since September to address labor market weaknesses, despite inflation remaining above the 2% target [4][5] - Economists and traders believe that the potential for further Fed interest-rate cuts is contingent on the health of the jobs market, with some banks pushing their forecasts for cuts into 2026 [5][6] - Two-year Treasury yields fell by about 3 basis points after the CPI data, while 10-year yields rose by about a basis point, indicating market sensitivity to monetary policy shifts [7][8] Group 3 - The upcoming 30-year bond auction is expected to yield around 4.83%, the highest for a comparable sale since July, driven by expectations of Fed easing and significant US borrowing needs [8][9] - Treasury yields have remained within narrow ranges over the past month, despite various administration initiatives aimed at influencing the housing market [10][11] - Recent threats to Fed independence have not significantly impacted market sentiment, as support for Fed Chair Jerome Powell has emerged from various political and monetary authorities [11]