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(Bloomberg) -- Treasuries advanced as softer-than-forecast US inflation data bolstered expectations that the Federal Reserve will cut its benchmark interest-rate at least twice next year.

The policy-sensitive two-year yield fell about two basis points to 3.46% and touched the lowest since October as the figures underscored the case for more Fed cuts amid signs of a cooling labor market. The 10-year yield fell about four basis points, to 4.11%.

The consumer price-growth figures out Thursday, complicated because of the US government shutdown, showed that underlying US inflation in November rose from a year earlier at the slowest pace since early 2021, according to the Bureau of Labor Statistics. The overall figure climbed 2.7% year-over-year, compared to a median forecast of 3.1%.

The report “will placate those who have been advocating inflation is sticky,” said Tom di Galoma, managing director at Mischler Financial Group. The Fed will need to “open the door for further rate cuts.”

The central bank cut rates a quarter-point last week for the third straight time to support the economy. For its next policy decision in January, swaps are pricing in about five basis points of easing, or about a 21% chance of a quarter-point cut — about the same as before the release. A reduction is fully priced in by mid-2026. Traders are also sticking with their call that the Fed makes two quarter-point reduction in policy rates next year, one more than Fed officials’ median forecast.

The report comes a day after Fed Governor Christopher Waller, who’s under consideration to become chair of the central bank when Jerome Powell’s term ends in May, reiterated his dovish views on interest rates.

Last week’s Fed decision featured dissents in favor of no action by two regional bank presidents concerned about sticky inflation, and one in favor of a larger cut by Governor Stephen Miran, a Trump appointee.

What Bloomberg Strategists say...

“Thursday’s rally in bonds may not have a robust follow-through given 10-year yields are getting close to 4%. Despite the good news on inflation, we’re probably still in a bad-news-is-good-news regime for Treasuries where dire labor market news is the best way to get a rally.”

—Edward Harrison, Macro Strategist, Markets Live