The 10-year US Treasury yield rose above the 5% threshold on Tuesday, driven by October consumer inflation data that exceeded economists' forecasts. The yield on the benchmark note climbed 15 basis points to 5.015%, while the 30-year yield advanced 11 basis points to 5.37%.
The move marks a resurgence in bond market pressure after yields had retreated from their early October levels, when they reached 24-year highs. The 10-year note serves as a global reference for borrowing costs, influencing long-term interest rates across the economy.
Hot CPI Data Jolts Treasuries
The Labor Department reported that the Consumer Price Index (CPI) rose 0.4% month-over-month in October, surpassing the 0.3% increase anticipated by economists polled by Dow Jones. Core inflation, which strips out volatile food and energy prices, also came in above expectations, climbing 0.3% versus the 0.2% forecast.
The annual inflation rate for October was not published because a government shutdown in October of the previous year prevented the collection of data needed for the year-over-year comparison.
In response, the 2-year Treasury yield jumped approximately 20 basis points to 4.75%, on track for its largest one-day increase since April 2025. The 10-year yield added 13 basis points to 4.99%, just shy of the 5% mark.
Rate Hike Odds Increase
The stronger-than-expected inflation figures have intensified speculation about another rate increase at the Federal Reserve's December 9 meeting. According to CME FedWatch data, markets now price in an 87% probability of a rate hike, up from 84% on Monday.
Rate hike concerns had already escalated last week following a robust employment report. Nonfarm payrolls increased by a seasonally adjusted 165,000 in October, significantly exceeding analysts' estimates of 59,000. Strong job growth, coupled with persistent inflation, could provide policymakers with additional justification for maintaining restrictive monetary policy.
Waller Open to Larger Increase
Federal Reserve Governor Christopher Waller, speaking in London on Tuesday, indicated a preference for a quarter-point rate hike in December but left the door open for a larger move if inflation proves more stubborn than anticipated. Waller stated that a 50 basis point increase should also be considered at the upcoming meeting.
He emphasized the importance of following through on communicated rate increases, noting that the Fed does not necessarily need to raise rates at consecutive meetings as long as its policy signals remain credible. "When this communication is clear and credible, what really matters is that those hikes are eventually carried out," Waller said. He warned that if hikes are not implemented, markets would reduce expectations and rates would immediately fall, loosening monetary policy in an undesirable way.
Federal Reserve policymakers have consistently stressed the need to bring inflation down to their 2% target. The wholesale inflation figures due Friday are expected to play a crucial role in shaping the central bank's decision next month.
This article is for informational purposes only and does not constitute financial advice.
