US Treasury Yields Slide as Core Inflation Shows Unexpected Deceleration

US Treasury markets saw a significant rally on Friday as fresh inflation data suggested a cooling trend in consumer prices, prompting a sharp decline in benchmark yields. The move comes as investors scrutinize every data point to determine the Federal Reserve's trajectory. With the central bank having previously signaled that only one more rate increase is likely this year, the latest figures provide a catalyst for traders to bet on a potential pause in tightening. According to the Commerce Department, the annual rate of core consumer price growth—which excludes volatile food and energy costs—slowed to 4.6% in February, down from 4.7% in January. This deceleration came as a surprise to economists, who had expected the pace of growth to remain unchanged. Headline inflation also cooled, falling to 5.0% year-over-year from 5.3% the previous month. On a monthly basis, consumer prices rose 0.3% in February, coming in below the 0.4% forecast by economists. Core prices also increased by 0.3% monthly, following a 0.5% advance in January, though this was slightly above the 0.2% expectation. In response to the data, the yield on the benchmark ten-year Treasury note dropped 5.7 basis points to settle at 3.494%. This price action reflects a shift in sentiment toward a more dovish Fed outlook for the early May policy meeting. Market participants are now shifting their focus toward upcoming manufacturing and service sector activity reports, as well as the monthly employment report, to further gauge the health of the economy and the likelihood of further rate adjustments.