The yield on the 10-year US Treasury note dropped to a five-month low of 4.04% on Wednesday on softer inflation and strong demand in the last auction. Both headline and core producer prices in the US unexpectedly dropped in August, raising hopes of disinflation for consumers. Concerns of stubborn inflation in the US drove the FOMC to hold interest rates unchanged through the year despite growing evidence of a deteriorating labor market. The central bank is due to restart its cutting cycle next week with a 25bps cut, although the softer PPI print and pessimistic signals from the August jobs report drove a small portion of the market to position for a 50bps cut. Still, the yield curve continued to steepen as high inflation expectations and attacks on the Fed by the White House drove 30-year bonds to sharply underperform other maturities this year. In turn, the latest auction of 10-year notes came through 3 basis points, signaling strong demand.