Treasury prices early Wednesday rallied, pushing yields down dramatically, after tepid inflation data suggested that the Federal Reserve may need to adopt a more gradual pace of monetary tightening. The yield for the benchmark 10-year note slumped 8.3 basis points to 2.131%. The 2-year note lost 6.5 basis points to 1.307%, while the 30-year bond, or the long bond, fell 5.1 basis points to 2.802%. Bond yields and prices move inversely. The consumer-price index declined by 0.1% in May, the second drop in three months, while the core index only grew by 0.1%. Investors have closely eyed the CPI data as it could inform the Fed's thinking on how fast it should raise rates. Lower inflation is bullish for bonds, because a rise in inflation can erode a bonds value. Fed officials had previously described the tepid inflation data as "transitory" to set up for June's rate hike, but a continued decline in inflation could push back the central bank's schedule to reduce its balance sheet. The Fed is set to deliver its updated policy decision later Wednesday at 2 p.m. Eastern, with a news conference slated for half-hour later led by Janet Yellen. Wall Street had widely expected a quarter-point rate hike by the central bank.
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