Bonds Rally: The US 10-year treasury yield drops 14 basis points from 4.8% to 4.66%
The S&P 500 rallies 1.83% to 5,950, and the Nasdaq Composite zooms 2.45% to 19,511
CPI Data Signals Cooling Inflation in Good News for Fed
US Dec. consumer prices rise 0.4% M/M; Est. +0.4% The broader Consumer Price Index (CPI) matched expectations and rose 2.9% in December from a year earlier.
The benign numbers were in the Core CPI, led by shelter inflation, which was sorely needed.
Core prices rose 0.2% in December, less than the 0.4% estimated and 3.2% from a year earlier, down from 3.3% in November – an unexpected decline, which sparked the bond and stock rally.
Prices for shelter, airfares, used cars and trucks posted gains. Airfares were the outlier rising by 7% and gas prices also rose 4% MoM
Shelter inflation remained moderate, coming in at 0.3% on the month, a big sigh of relief for the Feds – shelter inflation is the stickiest and the hardest to reduce. The shelter index rose 4.6% YoY, the smallest annual increase since January 2022.
US government bonds rallied strongly, reviving hopes of additional Federal Reserve interest-rate cuts, which were down to a total 29 basis points cut for the whole year.
As the rally progressed Treasury yields across maturities fell by at least 10 basis points and closed with 10-year yields falling as much as 15 basis points to 4.65% for its biggest daily decline since August.
What a turbulent month so far – and all this before Trump is sworn in. The drop in yields reversed the sharp rise from a strong December employment data released Friday, which sparked a surge toward the highest levels in months to 4.81%, all but confirming that the Feds may not cut rates at all this year. At 4.81%, the 10-Year was a 100 basis points higher than when the Fed began easing in September.
