TREASURIES-US yields sink to multi-month lows as soft inflation data boosts easing bets

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US two-year yields fall to four-month low

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US 10-year, 30-year yields drop to 10-week trough

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US rate futures more than fully reflect two cuts in 2026

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US yield curve steepens post-CPI

(Adds comment in paragraphs 7-8, daily and weekly milestones, updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 13 (Reuters) - U.S. Treasury yields dropped on Friday, with yields on ?two-year notes falling to their lowest in four months, as cooler-than-expected inflation data ?for January bolstered bets that the Federal Reserve will deliver at least two rate cuts this year.

U.S. 10-year and 30-year yields slid to 10-week lows.

The ?move lower in yields, along with a steepening of the curve, underscored investors' view that the Fed is ?likely to begin easing by mid-year even as some economists warned that one benign inflation ?print will not shift policymakers' ?cautious stance.

Futures markets now fully reflect expectations for roughly two quarter-point cuts in 2026.

Friday's data showed the Consumer Price Index rose 0.2% last month after an ?unrevised 0.3% gain in December. Economists polled by Reuters had forecast ?the CPI increasing 0.3%.

Excluding the volatile food and energy components, the CPI increased 0.3% after rising by an unrevised 0.2% in December.

"The downside surprise in the January CPI is welcome news for ?the Federal Reserve, but we aren't changing the ?baseline forecast for monetary ?policy based on one inflation reading," said Bernard Yaros, lead U.S. economist at Oxford Economics in Philadelphia.

"Lingering distortions from the shutdown in the price data, prospects for solid growth this year, and a stabilizing job market ?will keep the central bank on hold until June."

In afternoon trading, U.S. 10-year yields fell 3.7 basis points (bps) ?to 4.067%. On a weekly basis, 10-year yields posted their worst decline since mid-November.

U.S. 30-year yields were down 3.3 bps at 4.696% , chalking up their biggest weekly fall since late March 2025.

U.S. two-year yields, which reflect interest rate expectations, sank 6.3 bps to 3.403%. They have fallen more than 9 bps this week, the largest weekly drop in three months.

The ?yield curve ?initially steepened following the CPI data. The spread between two-year and 10-year yields widened ?to as much as 66.5 bps compared with 64 bps late on Thursday. It was last at 64.2 bps.

The curve showed ?a bull-steepening move, with short-term rates falling faster than long-term yields, a pattern that typically signals expectations of near-term Fed rate cuts.

Following the inflation data, U.S. rate futures priced in about 63 bps of easing this year or roughly two rate cuts of 25 bps each. The figure was 58 bps before the CPI release.

"The Fed's path to 'normalization' cuts appears clearer now, with fears of a strong January print behind us with CPI coming in cold," said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs ?Asset Management in New York.

"How short or long that path is, however, will depend on whether employment continues to show signs of improvement, given the FOMC's (Federal Open Market Committee) sensitivity to labor market weakness. We continue to expect two cuts ?this year, with the next move coming in June." (Reporting ?by Gertrude Chavez-Dreyfuss; Additional reporting by Saeed Azhar and Suzanne McGee in Rhode Island; ?Editing by Nia Williams and Edmund Klamann)