US Treasury yields shot higher on Tuesday as investors bet a hot inflation rate will keep the Federal Reserve aggressive in tightening monetary policy.
The 2-year Treasury yield, the part of the curve most sensitive to Fed policy, rose more than 17 basis points to 3.748%. The yield temporarily rose to 3.794%, the highest level since November 2007. Yields move inversely with prices and one basis point equals 0.01%.
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Incessant inflation means the Fed could hike interest rates even faster
Meanwhile, the yield on the benchmark 10-year Treasury rose 6 basis points to trade at 3.42%. The yield on the 30-year government bond rose for most of the day before slipping 2 basis points to 3.492%.
The consumer price index increased by 0.1% for the month and by 8.3% over the past year. According to Dow Jones estimates, economists had expected headline inflation to fall by 0.1% month on month. The year-over-year estimate was 8%.
Energy prices fell 5% for the month, led by a 10.6% fall in the gasoline index. However, these declines were offset by gains elsewhere.
“We’ve seen this tug-of-war between goods moderating and services staying strong. This is not a tug of war. Both have gone up,” said Nomura economist Rob Dent. “Right now, I think the Fed will view this with great concern. That’s not good news in this report,” he said.
After the hot inflation reads, markets are pricing in a 100% chance the Federal Reserve will hike rates by at least 75 basis points for a third time next week, according to the CME FedWatch tool.
– CNBC’s Patti Domm and Natasha Turak contributed coverage.