Treasury Yields Jump After Hot CPI Report

The yield on the US 10-year Treasury note surged 9bps to 5.3% on Wednesday, approaching again highs last seen in early 2002, after the latest US inflation report came in hotter than expected. While higher energy prices were the main driver, the data also pointed to relatively broad-based inflationary pressures. Annual inflation accelerated to 3.7%, above forecasts of 3.6%, while the annual core inflation rate edged up to 2.6%, exceeding expectations of 2.5%. Monthly core CPI inflation also came in above forecasts at 0.3%. The report strengthened expectations of another Federal Reserve rate hike this month, with the probability of such a move rising to around 50%, up from approximately 22% before the release.

The yield on the 10-year US Treasury note held steady at around 5.21% on Wednesday as investors awaited September’s consumer inflation report for clues on the Federal Reserve’s next interest rate decision. New York Fed President John Williams reiterated that one more rate hike may be appropriate this year, while further tightening would likely be unnecessary in 2027. Meanwhile, Fed Governor Christopher Waller said inflation expectations remained “well anchored.” Additional remarks from Richmond Fed President Thomas Barkin and Fed Vice Chair for Supervision Michelle Bowman are expected later in the day. Markets are currently pricing in roughly a 77% probability that the Fed will leave rates unchanged this month, while assigning an 88% chance of a rate hike in December. Treasury yields have retreated in recent sessions as the global bond selloff eased, while heightened volatility in equity markets has boosted demand for bonds as a safe-haven asset.

The yield on the 10-year US Treasury note erased its early pullback on Tuesday to hover above the 5.2% threshold, as markets continued to assess the magnitude of inflation risks from higher energy prices and the outlook for bond issuance by the tech sector. Energy benchmarks recovered in the session as the tight supply backdrop is likely to persist. Signals that Saudi Arabia would strike Houthi targets prolonged the conflict that jeopardizes tanker flows through the Red Sea, while evidence of low oil loadings at Russian Black Sea ports erased any signals that Russia would step up energy exports. Still, improvements in Chinese AI chip technology raised concerns of foreign competition for domestic semiconductor giants, limiting the outlook for corporate credit. The latest research showed industry players penning $4.1 trillion in AI-related debt to be issued by 2030, crowding out the Treasury in its issuance of new securities.