TREASURIES-US yields take a nosedive after producer prices data waves a flag saying, "Inflation, who?"

On Thursday, U.S. Treasury yields took a nosedive faster than a cat avoiding a bath after the January Producer Price Index (PPI) dropped hints that inflation might finally be chilling out. This nudged the Federal Reserve towards possibly trimming interest rates later this year. Meanwhile, President Trump decided to play the tariff game, announcing tit-for-tat taxes on countries taxing U.S. imports, but the Treasuries market shrugged and said, "Meh." Inflation was the drama queen of the week, with both consumer and producer price indexes putting on a show, though not quite as spectacular as some had feared. The PPI strutted up by 0.4%, while the core components of the PCE index were as stable as a yoga master. Healthcare prices, which make up a chunk of the core PCE, did a little downward dog. After the PPI report, U.S. rate futures started whispering about increased chances of rate cuts this year. The benchmark 10-year yield took a 10.1 bps tumble to 4.533%, its biggest one-day drop since mid-January, while the two-year yield also decided to join the Fed's potential dance party. The PPI report followed news of a 3.0% annual rise in the CPI for January, just a smidge above what the forecasts had scribbled down. Fixed-income investors weren't exactly lining up at the Treasury's $25 billion auction of 30-year bonds, with the bond priced slightly above what was expected. The U.S. two-year breakeven inflation rate rose before deciding to chill out, still hovering above the Fed's 2% target. The yield curve decided to go on a diet, with the spread between two-year and 10-year yields slimming down. Despite all the day's antics, some investors remained as cautious as a cat around a rocking chair about single-day fluctuations.