Wall Street is once again demonstrating its volatility as bond traders are backing down on their bets that the Federal Reserve will raise interest rates in July.

The unexpected sharp decline in inflation has ignited a rally in the U.S. bond market, causing traders to abandon their bets on the possibility of the Federal Reserve raising interest rates as early as this month. This is another rapid turnaround in Wall Street's sentiment. Previously, hawkish comments from Federal Reserve officials, along with escalating tensions between the U.S. and Iran driving up oil prices, had fueled speculation that a rate hike at the July 29 meeting was likely. However, the Consumer Price Index report for June released by the U.S. Department of Labor showed a decrease for the first time in six years, which almost certainly buys the Federal Reserve some time. Futures traders subsequently pushed back the potential timing of a rate hike by the Federal Reserve to September or even October. The U.S. stock market responded with gains, while the U.S. dollar weakened against all other major currencies. The two-year U.S. Treasury yield, closely tied to changes in monetary policy, briefly plummeted by 14 basis points to 4.14%, marking its largest drop since August of last year. "Today's data negates the possibility of a rate hike in July," said Zach Griffiths, Head of Investment-Grade and Macro Strategy at CreditSights. "Although inflation remains high and the situation in the Middle East is deteriorating, today's data should be enough to keep them on the sidelines for now."