The 10-year US Treasury yield climbed back above 5% on Tuesday after consumer inflation in October came in hotter than expected.
Yields on the 10-year Treasury note rose 15 basis points to 5.015%, while the long-dated 30-year yield gained 11 basis points to 5.37%.
The 10-year Treasury note serves as a global benchmark for borrowing costs, influencing long-term interest rates across the economy. Yields rise when bond prices fall.
The latest move higher comes after yields had cooled from their early October levels, when they touched 24-year highs.
CPI data adds to rate hike concerns
Consumer inflation in the United States rose more than economists expected in October, data from the Bureau of Labor Statistics showed Tuesday.
The Consumer Price Index increased 0.4% on a seasonally adjusted basis during the month, compared with the 0.3% rise expected by economists polled by Dow Jones.
Core inflation, which excludes volatile food and energy prices, also came in above expectations, rising 0.3% against economists’ estimates of 0.2%.
The annual inflation rate for October was not published because a government shutdown in October last year prevented the collection of data needed for the year-over-year comparison.
The latest figures have brought renewed attention to the possibility of another rate increase at the Federal Reserve’s December 9 meeting.
Markets are pricing in an 87% probability of a rate hike, as per CME Fedwatch data. The odds increased slightly from Monday’s 84%.
Rate hike concerns had already strengthened last week after the employment report showed stronger-than-expected job growth.
Nonfarm payrolls increased by a seasonally adjusted 165,000 in October, well above analysts’ estimates of 59,000.
Strong employment growth, alongside persistent inflation, could give policymakers another reason to maintain restrictive monetary policy.
Waller leaves door open to bigger rate increase
“Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”
Earlier Tuesday, Federal Reserve Governor Christopher Waller said he leaned toward a quarter-point rate increase in December but left the door open to a larger move if inflation proved more persistent than expected.
Speaking in London, Waller said a half-point increase should also be considered.
“I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” he said.
Waller also stressed the importance of following through on communicated rate increases, saying the Fed did not necessarily need to raise rates at consecutive meetings as long as its policy signals remained credible.
“When this communication is clear and credible, what really matters is that those hikes are eventually carried out — it is not necessary, for example, to raise rates at consecutive meetings,” he said.
“If, however, the hikes are not carried out, markets will reduce expectations of rate hikes and rates will immediately fall, which would loosen monetary policy in an undesirable way.”
Federal Reserve policymakers have consistently emphasized the need to bring inflation down to their 2% target.
The wholesale inflation numbers due Friday are going to be crucial in shaping the direction of the Federal Reserve’s decision next month.
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