- Short-dated Treasurys sold off hardest. The 2-year yield, which tracks Fed rate expectations most closely, rose more than 15 basis points to 4.698%, while the 10-year climbed more than 7 basis points to 4.938% and the 30-year gained more than 3 basis points to 5.29%, CNBC reported.
- The curve flattened sharply. The gap between the 10-year and 2-year yields narrowed to about 24 basis points by our calculation, as investors priced in near-term Fed tightening more than long-run growth or inflation.
- The selling deepened after the open. By 10:18 a.m. ET, CoinDesk reported the 10-year yield up 13 basis points to 4.99% and the 2-year up 19 basis points to 4.736%, as a Fed hike next month looked assured.
- The trigger was a double surprise on inflation. October CPI rose 0.4% versus a 0.3% forecast and core rose 0.3% versus 0.2%, landing hours after Fed Governor Christopher Waller said a hot reading could justify a half-point hike in December.
What Happened?
Treasury yields jumped Tuesday after the consumer price index for October came in hotter than economists polled by Dow Jones expected. Headline CPI slowed from September’s 0.6% gain but still beat forecasts, while core CPI matched September’s 0.3% rise. The move came as oil prices fell further, with Brent crude dropping below $90 a barrel for the first time since August, which normally would ease inflation worries. Markets had already largely priced in a 25 basis point hike in December, according to CME Group’s FedWatch, and the report pushed traders to consider a bigger move.
Why It Matters?
The 2-year yield is the bond market’s most direct read on Fed policy, so its outsized jump shows investors are repricing how fast and how far the Fed tightens rather than worrying mainly about long-run inflation. Higher 10-year yields feed directly into mortgages, car loans and credit card rates, tightening financial conditions for households. Goldman Sachs Asset Management’s Lindsay Rosner said “a December hike is our firm base case despite wider AI jitters, and stubborn inflation means we cannot rule out further hikes in 2027.” Last week’s jobs report, which showed 165,000 jobs added in October, more than double forecasts, adds to the case that the economy can absorb tighter policy.
What’s Next?
Friday’s wholesale inflation data is the next test for yields ahead of the Fed’s Dec. 8-9 meeting. Watch whether the 10-year holds near 5%, a level CoinDesk’s figures showed it approaching Tuesday morning, and whether the curve keeps flattening as traders weigh a 25 versus 50 basis point hike.
