TREASURIES-US yields plunge as bets rise on 2024 cuts after weak inflation data

(Adds analyst comment, updates prices) * US headline CPI unchanged in October * US core CPI rises les than expected * US two-year yields fall to two-week lows * US rate futures price in rate cut in May 2024 By Gertrude Chavez-Dreyfuss NEW YORK, Nov 14 (Reuters) - U.S. Treasury yields plummeted on Tuesday after softer-than-expected consumer inflation data in October, suggesting the Federal Reserve may be done raising interest rates, as the market braced for rate cuts by the first half of next year. U.S. two-year yields, reflecting interest rate expectations, slid to two-week lows of 4.830% and were last down 19.7 basis points (bps) at 4.844%. The yield was on track for its largest daily fall since May. The benchmark 10-year yield, which moves inversely to prices, fell to a two-month low of 4.432% and last traded down 16.5 bps at 4.467%. It is set to post its biggest one-day decline since March. U.S. three-year, five-year, and seven-year notes, as well as 20-year and 30-year bonds, all dropped to two-month troughs. Data showed the U.S. consumer price index (CPI) was unchanged in October amid lower gasoline prices, and the core rate was up 0.2%, weaker than anticipated. The unchanged reading in the consumer price index followed a 0.4% rise in September. In the 12 months through October, the CPI increased 3.2% after rising 3.7% in September. Economists polled by Reuters had forecast the CPI gaining 0.1% on the month and increasing 3.3% on a year-on-year basis. "Some of the talk before the number itself was for the risk of a slightly stronger 0.3%, and so the fact that it was meaningfully lower than that was enough to bring in some buying interest in bonds," said Ben Jeffery, vice president and interest rates strategist, at BMo Capital in New York. "I think it diminishes the probability the Fed hikes in December and makes the bar for them to tighten again pretty high." U.S. rate futures priced in on Tuesday a more than 60% chance of a rate cut in May next year, compared with 34% late on Monday, according to the CME's Fedwatch tool. Also on Tuesday, the yield curve slightly narrowed its inversion, with the spread between U.S. two-year and 10-year yields last at minus 38.20 bps. Market participants referred to Tuesday's s yield curve move as a "bull steepener," in which short-term yields fall faster than long-term ones. This often happens when the Fed is expected to lower interest rates, analysts said. With consumer inflation out of the way, investors are now focused on U.S. retail sales data on Wednesday, with Wall Street economists expecting a 0.3% fall in October after a 0.7% rise the previous month, according to a Reuters poll. The U.S. producer price index (PPI) is also on tap on Wednesday. Economists are forecasting a 0.1% gain last month, compared with a 0.5% increase in September. On a year-on-year basis, the PPI is seen at 1.9% from September's 2.2%. "After today's hefty reactions in Treasuries and equities, the risk to markets is for another upside surprise," wrote Action Economics on its blog after the CPI data. "However, we doubt such would erase today's rally." November 14 Tuesday 12:30PM New York/1730 GMT Price Current Net Yield % Change (bps) Three-month bills 5.2575 5.4179 -0.008 Six-month bills 5.215 5.4463 -0.049 Two-year note 100-72/256 4.8465 -0.194 Three-year note 100-14/256 4.6053 -0.209 Five-year note 101-222/256 4.4508 -0.211 Seven-year note 102-72/256 4.4893 -0.200 10-year note 100-64/256 4.4687 -0.163 20-year bond 94-36/256 4.8385 -0.120 30-year bond 101-200/256 4.6394 -0.106 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Sinead Carew and Karen Brettell; Editing by Chizu Nomiyama, Tomasz Janowski and Jonathan Oatis)