U.S. Treasury futures prices climbed to session highs after the January Consumer Price Index (CPI) data came in below expectations, leading to a steepening of the yield curve. While core CPI met forecasts, actual average hourly and weekly earnings figures were revised downward.

Yields on U.S. Treasuries fell by as much as 4 basis points during the day, retreating to session lows after the data release. Short-term bonds led the advance, with the yield spread between 2-year and 10-year notes widening by 2 basis points on the day.

Overnight index swap (OIS) contracts tied to Federal Reserve meeting dates reflected a dovish tilt, with markets now pricing in approximately 63 basis points of interest rate cuts by year-end, up from 58 basis points on Thursday. This implies roughly a 50% probability of a third 25-basis-point rate cut by the end of December.