US Treasury yields fell sharply as traders boosted the probability of Federal Reserve rate cuts to 50% for three reductions in 2026. The shift followed a US inflation reading that came in below market forecasts, prompting investors to recalibrate their expectations for monetary policy.

Traders are now pricing in a more aggressive easing cycle than previously anticipated, with futures markets reflecting increased bets on multiple rate cuts this year. The lower-than-expected inflation data suggests the central bank may have more room to lower borrowing costs as it seeks to support economic growth while keeping inflation in check.

The market reaction underscores how sensitive investors are to inflation data, with even modest surprises triggering significant moves in rate expectations. This pivot toward a more dovish Fed stance could have broad implications for everything from mortgage rates to corporate borrowing costs, potentially reshaping investment strategies across asset classes.