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US September CPI rises less than expected

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US October consumer sentiment index falls from September

level

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US 2/10 yield curve steepens

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By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 24 (Reuters) - U.S. Treasury yields were

narrowly mixed on Friday, with those on the shorter end of the

curve slightly lower, after data showed consumer prices in the

world's largest economy rose less than expected in September.

The inflation report reinforced expectations that the

Federal Reserve will cut interest rates at its policy meeting

next week.

Longer-dated U.S. yields, on the other hand, were modestly

higher after a consumer sentiment survey from the University of

Michigan showed a decline in the index, but an increase in

five-year inflation expectations.

Investors, however, were more focused on the U.S. Consumer

Price Index (CPI), which rose 0.3% last month after climbing

0.4% in August, data showed. On a year-on-year basis, the CPI

grew 3.0% after advancing 2.9% in August.

Economists polled by Reuters had forecast the CPI increasing

0.4% and rising 3.1% year-on-year.

Excluding the volatile food and energy components, the CPI

gained 0.2% after rising 0.3% in August. The so-called core CPI

increased 3.0% year-on-year after rising 3.1% in August.

In late morning trading, the benchmark 10-year yield turned

lower after the CPI data, but was flat on the day at 3.997%

, while the two-year yield, which reflects interest

rate expectations, dipped 1.1 bps to 3.472%.

U.S. 30-year bond yields were up 1.5 bps at 4.586%.

"It (CPI) was weaker than we expected, but I think a lot of

signs of underlying inflation pressure are still there," said

Jeremy Schwartz, senior U.S. economist at Nomura in New York.

"As long as you're in that mode where you're tolerating a

little bit more inflation, this is a good report. This is going

to encourage them to keep on that path of insurance cuts or

normalization, depending how you view it."

The Fed is expected to reduce rates two more times this

year, with a quarter-percentage-point cut baked in for the

October 28-29 meeting, according to LSEG calculations using rate

futures. For 2026, the Fed funds futures market has priced in

about three more 25-bps cuts.

The yield curve, meanwhile, steepened in the wake of the

CPI data, with the spread between U.S. two-year and 10-year

yields at 52.2 bps, from 50.8 bps late on

Thursday. It was a pullback from the flattening trend seen in

the last few days.

The curve hit 48 bps immediately after the inflation

number, the flattest since September 12.