Treasury yields jump after hotter-than-expected inflation data
TLT•US Treasury yields rose after October consumer prices increased 0.4%, above economists’ expectations, and core prices gained 0.3%. Traders priced in a 29-basis-point Fed rate hike in December, with growing bets on a possible 50-basis-point increase.
1. Yields rise on inflation
US Treasury yields jumped after October consumer prices rose more than economists expected, prompting traders to increase bets on a larger Federal Reserve rate hike in December. The Consumer Price Index increased 0.4% after rising 0.6% in September; core prices rose 0.3%, matching September’s increase.
2. Rate hike expectations
Fed funds futures were pricing in a 29-basis-point hike at the Fed’s December 8-9 meeting, indicating increased expectations of a possible 50-basis-point move. Fed Governor Christopher Waller said a half-point increase should be considered if the inflation picture worsens. The two-year yield rose 19.28 basis points to 4.74%, while the 10-year yield gained 12.97 basis points to 4.992%.
3. Debt sales ahead
The Treasury was scheduled to sell $42 billion in 10-year notes on Tuesday, following a $58 billion three-year note sale on Monday. The government was also due to auction $25 billion in 30-year bonds on Thursday; the bond market would be closed Wednesday for Veterans Day.
