The US bond market has seen a shift in sentiment as traders abandon bets on a Federal Reserve interest rate hike this year, following two consecutive reports of softer inflation. This has led to a rush to exit positions that were previously established in anticipation of at least one increase by the Fed.

Traders in interest-rate options are particularly active in unwinding these wagers. The recent inflation data, which came in lower than expected, has significantly reduced the perceived likelihood of further tightening by the Fed. This has caused a notable decline in yields across various maturities, reflecting the market's re-evaluation of the monetary policy outlook.

The market is now pricing in a much lower probability of a rate hike, with many economists and strategists suggesting that the Fed may be nearing the end of its hiking cycle, or has already concluded it. The focus has shifted to when the Fed might consider cutting rates, rather than raising them further. This recalibration is a direct response to the cooling price pressures observed in the latest economic indicators, prompting a significant adjustment in the yield curve and swap rates.