US Treasury Yields Ease Off Highs After Hotter-Than-Expected Inflation

what happened

US Treasury yields eased after a surprisingly strong inflation report revived the global bond selloff. According to the Wall Street Journal, the September Consumer Price Index rose 3.7% from a year earlier, up from 3.4% in August and above the 3.6% pace in the WSJ survey. The core reading, which excludes food and energy, also came in higher than forecast.

Investors sold government bonds, pushing yields up. The 10-year Treasury yield came close to its 24-year high set last week, then fell to 5.190% from 5.216% at Tuesday's settlement. Market pricing for a Federal Reserve rate hike this month, according to CME's FedWatch tool, rose to 34% and moved in step with yields. In Europe, the 10-year German Bund yield climbed to 3.503% from 3.496% after the CPI data, then slipped back to 3.441%.

“It seems difficult to believe that inflation is going to disappear overnight,” said Burke Koonce, chief investment strategist at Trust Company of the South. He pointed to energy costs elevated by the war in the Middle East and an AI infrastructure investment boom that is lifting demand and prices. Front-month Brent crude hovered around $106 a barrel. Earlier, New York Fed President John Williams said the Fed might need to raise rates at some point in the near future.

why it matters

For markets, the expectation of inflation staying above target for longer and of steep borrowing costs keeps pressure on bonds, the dollar and precious metals. Investors will now watch September producer-price inflation and retail sales on Thursday, and Federal Reserve Chairman Kevin Warsh's speech at the IMF annual meeting on Friday.

tags

instruments