U.S. Treasury yields surge and then retreat; market bets the probability of a Federal Reserve rate hike in October drops to 33%

During the overnight US session, US Treasury prices rebounded sharply, reversing the previous sell-off momentum triggered by the latest uptick in inflation data, with yields on most maturities turning lower. This highlights the market's bet on two competing scenarios: on one hand, the continuously accelerating consumer price data; on the other, statements from Federal Reserve officials indicating they are not in a hurry to raise rates further. Official US data shows that September CPI rose by 3.7% year-on-year, exceeding the market expectation of 3.6%. After the data release, the 2-year US Treasury yield rose to the highest level in over two weeks, before retreating from intraday highs along with long-term yields. Traders' bets on the probability of a Fed rate hike in October rose from 22% before the data release to about 40%, before falling back to 33% at the time of writing. TD Securities US interest rate strategist Brooks said that the changes in the probability of a rate hike and bond yields are likely closely linked to recent dovish remarks by several officials, including New York Fed President Williams and Fed Vice Chair Jefferson. Brooks stated that, for now, a 50/50 chance of a rate hike in October seems quite reasonable, as the data may be sending one signal while the Fed is sending another.