U.S. Treasury yields rose on Tuesday after the U.S. consumer price index rose above expectations in October. A mediocre auction of $42 billion in Treasury securities added to the bond selloff.
yield of 10 year treasury note, a benchmark for mortgage, auto loan and credit card rates, traded above 5% before offsetting gains. It last rose 13 basis points to 4.992%. of 30 year treasury Bond yields, which are more sensitive to geopolitical developments, rose more than nine basis points to 5.352%. of 2 years treasury Bond yields, roughly in line with the Fed’s short-term interest rate forecast, rose more than 18 basis points to 4.736%.
The last time the 10-year Treasury yield traded above 5% was earlier this month. In October, yields on 10-year and 30-year bonds hit 24-year highs.
One basis point is equal to 0.01%, or 1/100th of 1%, and yield and price are inversely proportional to each other.
Consumer prices rose 0.4% in October, higher than the 0.3% expected by economists polled by Dow Jones, but lower than September’s 0.6% rise.
Core CPI, which excludes volatile food and energy prices, rose 0.3%. Economists had expected a 0.2% rise from the same month. This figure matched September’s 0.3% rise.
The report was released after Fed Governor Christopher Waller said he supported “stronger action” if inflation was higher than expected.
“In that case, I think a 50 basis point hike in the policy rate should be considered at the December meeting,” Waller said at a central bank meeting hosted by the Bank of England in London. “An increase of just 25 basis points would put our confidence at risk, and I don’t want to take that risk.”
Lindsey Rozner, head of multisector fixed income investments at Goldman Sachs Asset Management, said the strong CPI numbers indicate the Fed’s rate hikes could extend into 2027.
“With the CPI remaining strong, the Fed could pursue a more aggressive tightening cycle,” he said. “Despite widening AI jitters, a rate hike in December remains our firm base case, and given inflation is stubborn, we cannot rule out further rate hikes in 2027.”
Tuesday’s 10-year Treasury auction was lackluster, putting further downward pressure on bond prices. “Today’s 10-year bond auction was a little soft,” economists at BMO Capital said. “Prior to the auction, U.S. Treasuries were sold in large quantities, and the 10-year Treasury note entered the auction deadline 12 basis points lower on the day. As a result, yields rose slightly on follow-through.”
“Dealers left 10% of the auction, which is the highest amount since May,” said Peter Boockvar, chief investment officer at One Point BFG Wealth Partners. “Today’s inflation break-even focus is on the drop in oil prices, but for now regular U.S. Treasuries are reacting to the Fed, which is certain to raise rates next month, and they are reacting to each other in January at this point,” he said.
Oil prices fell further on Tuesday; brent crude oil It fell below $90 per barrel for the first time since August. However, North Sea Brent futures settled above that level, down 1.17% to $91.49 per barrel. This comes as President Donald Trump commented that the war with Iran could end “quite quickly” and downplayed the possibility of further attacks in the region.
Tuesday’s CPI data, along with the big inflation numbers released on Friday, could shape the Fed’s future decisions on interest rates. The market is almost pricing in a quarter-point rate hike in December, according to CME Group’s FedWatch tool. Those hawkish forecasts were further strengthened by Friday’s better-than-expected U.S. jobs report, more than double what economists expected.
