US Treasury yields plummet as inflation surprises, Fed dovish bets grow

• US 10-year Treasury yield drops to 4.214% following unexpected -0.1% MoM contraction in June CPI.
• Core CPI increases by just 0.1% MoM, bolstering predictions for Fed rate cuts beginning September 2024.
• Gold exceeds $2,400 and Silver ascends past $31.00 as traders forecast 49 bps of easing by December 2024.

US Treasury bond yields tanked on Thursday after the US Bureau of Labor Statistics (BLS) revealed a surprise fall in inflation before Wall Street opened. This reinforced speculation that the Federal Reserve could start lowering interest rates in 2024, and according to data, traders target September as the first cut.

US CPI drop boosts Gold and Silver prices amid strengthening rate cut bets

The Consumer Price Index (CPI) for June contracted by -0.1% Month over Month, below estimates of a 0.1% increase. Underlying inflation, as measured by Core CPI, rose by 0.1% Month over Month, also beneath the consensus and May’s data.

Annual readings were also lower, as CPI fell from 3.3% to 3%, while core inflation dipped from 3.4% to 3.3%.

Other data showed the labor market remains robust as Initial Jobless Claims for the week ending July 6 came in better than expected at 222K, below the consensus of 236K and the previous reading of 239K. This highlights the labor market's strength, though data released during the day reaffirmed a Goldilocks scenario.

After the data, the odds of a September Fed rate cut have increased to 84%, up from 72% on Wednesday, via the CME FedWatch Tool,

The US 10-year Treasury bond yield plunged seven and a half basis points to 4.214%, though it hit its lowest level since March earlier at 4.168%. This pushed Gold prices above $2,400 and Silver above $31.00 a troy ounce, each.

Data from the Chicago Board of Trade (CBOT) shows that traders expect 49 basis points (bps) of easing, according to December’s 2024 fed funds rate futures contract.