Seismic Day for Treasuries Fuels Bets Fed to Slash Rates in 2024

A normal day for markets became something extraordinary after a hotly anticipated report on US inflation gave traders the greenlight to declare that the Federal Reserve’s most aggressive interest-rate hiking cycle in decades is over.

Yields on rate-sensitive two-year notes slumped as much as 23 basis points to 4.81%, as investors marked down the odds of another rate increase to almost nil. Meanwhile, the benchmark 10-year rate slid about 19 basis points to 4.45%, and traders boosted their bets on the Fed slashing rates next year to price in more than half a percentage point of cuts by July.

Traders in the options market went one step further: piling into wagers that stand to benefit from cuts as soon as March.

“There’s been a sea change in investors’ perceptions of where the Fed is headed with policy,” said Chris Ahrens, a strategist at Stifel Nicolaus & Co. “Not only do they see the Fed as done, but they are pricing in two cuts by the middle of next year.”

Yields Plunge as Soft CPI Sparks Fed is Done Sentiment