The US bond market just got the number it was waiting for. June’s Consumer Price Index came in at negative 0.4% month-over-month, marking the first outright decline in consumer prices since 2020, and traders responded exactly how you’d expect: by ripping up their rate hike playbooks.
The annual inflation rate dropped to 3.5%, a reading soft enough to send Treasury yields sliding and force a rapid unwinding of options positions that had been betting on at least one more Federal Reserve rate increase this year.
The trade that died on arrival
SOFR options activity, the derivatives market where traders express views on short-term interest rates, saw a dominant move toward put selling as participants closed out positions that had been structured around a hawkish Fed.
Zach Griffiths of CreditSights put it bluntly: “Today’s print takes a July hike off the table.”
