Treasury yields extend declines as markets eye soft inflation data, Fed policy

Investing.com -- U.S. Treasury yields slipped further on Friday, as markets tried to gauge if the Federal Reserve's recent campaign of interest rate hikes has reached its peak following a week of soft inflation data.

By 06:08 ET (11:08 GMT), the 2-year Treasury yield, which is highly sensitive to rate expectations, had dropped by 4 basis points to 4.805%. The benchmark 10-year yield, meanwhile, dipped by 5 basis points to 4.390%. Yields move inversely to prices.

"The market is clearly [eyeing] a change in the rate cycle," analysts at ING said in a note.

According to Investing.com's Fed Rate Monitor Tool, the chances that the Fed may choose to reduce borrowing costs as soon as March of next year have risen in recent days, although markets are betting that a cut at the central bank's May meeting is more likely.

The all-important Fed funds rate currently stands at a range of 5.25% to 5.50% following an unprecedented tightening cycle aimed at quelling elevated inflation.

Figures this week showed an unexpected decline in wholesale prices in October, while growth in consumer prices was slower than anticipated last month. The numbers fueled hopes that the elevated interest rates are working to bring inflation back down to the Fed's stated 2% target. Oil prices, a key portion of headline price growth, are also on track to fall for the fourth straight week.

However, Cleveland Fed President Loretta Mester noted in an interview with business news channel CNBC that "we need to see more" progress in cooling prices.

"The Fed does not appear ready to give in yet to somewhat softer data and the markets' speculation for earlier rate cuts," the ING analysts said.