U.S. Treasury yields fall as inflation-driven gains reverse

U.S. Treasury yields fell on Wednesday afternoon, reversing an earlier inflation-driven rise, as prices of government bonds recovered across most maturities by the end of the trading day. The Labor Department reported the consumer price index rose 0.6% in September, following a 0.4% gain in August, with a 3.7% annual increase that exceeded economist forecasts of 3.6%. Two-year yields initially hit their highest level in over two weeks before retreating alongside longer-dated bond yields. Market expectations for a Federal Reserve rate hike at the October 27-28 meeting rose to about 40% from 22% before the data, then fell back to roughly 33% later in the afternoon, according to LSEG data. The reversal highlighted a debate between rising consumer prices and recent Fed comments suggesting the central bank may not rush to hike further.