Treasuries sank Tuesday after hotter-than-expected US inflation data cemented bets for a Federal Reserve rate hike in December. Yields on two- to five-year notes jumped more than 10 basis points as traders priced in at least two hikes by mid-2027 and a small chance of a half-point move next month.
Fed Governor Christopher Waller said he supports a December increase and would favor a 50-basis-point hike if inflation accelerates. "Clearly, the 50 basis point hike is on the table for discussion," said Tiffany Wilding, economist at Pacific Investment Management Co. Core CPI rose 0.3% month-over-month; overall CPI climbed 0.4%. The BLS did not publish year-over-year figures due to last October's government shutdown.
The data follows Friday's strong jobs report with unexpected wage growth. "The Fed skipped October and now will probably need to do some make up," said Alex Pelle, senior US economist at Mizuho, framing the debate as "between 25 versus 50 basis points at the December meeting, not zero versus 25." The 10-year yield reached 4.94% ahead of a $42 billion auction.
Bonds have recovered some losses on safe-haven demand amid Middle East tensions and AI-sector volatility. Kevin Flanagan of Wisdom Tree said yields could rise back toward 5% once the tech trade settles.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing