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6-month through 20-year Treasury yields soar further above 4% after September CPI comes in hot


Treasury yields soared further above 4% on Thursday amid an aggressive selloff in government bonds after the September reading of the U.S. consumer-price index came in hot and secured another 75-basis-point rate hike by the Federal Reserve next month.

What yields are doing
  • The yield on the 2-year Treasury note

    was at 4.502%, up from 4.287% at 3 p.m. Eastern on Wednesday.

  • The 10-year Treasury note yield

    advanced to 4.047% from 3.901% on Wednesday afternoon.

  • The 30-year Treasury bond yield

    was at 3.974% versus 3.886% late Wednesday.

  • The spread between the 2- and 10-year yields briefly shrank to as little as minus 59 basis points in an ominous sign about the economic outlook.

Market drivers

The latest reading on the U.S. consumer-price index for September confirmed that inflation is showing little signs of letting up. Though the year-over-year rate of inflation slipped to 8.2% from 8.3%, the cost of living rose 0.4% in September — more than the 0.3% rise expected by economists surveyed by The Wall Street Journal.

And the so-called core rate of inflation that omits food and energy prices jumped a sharp 0.6%, above Wall Street’s forecast for a 0.4% gain. The increase in the core rate over the past year also climbed to a new peak of 6.6% from 6.3%, marking the biggest gain in 40 years.

Fed funds futures traders priced in a 93.8% chance that the  Federal Reserve will lift its main interest-rate target by 75 basis points, or three-quarters of a percentage point, to a range of 3.75% to 4% on Nov. 2, up from 84.5% on Wednesday, according to the CME FedWatch tool. A 6.2% chance of a 100 basis point hike was also seen.

See:  Hot CPI reading cements expectations for 75 basis point Fed rate rise in November

Meanwhile, concerns about liquidity in the U.S. Treasury market were underscored Wednesday by U.S. Treasury Secretary Janet Yellen.

“We are worried about a loss of adequate liquidity in the market,” Yellen said Wednesday in response to questions following a speech in Washington, according to news reports. Yellen said the balance-sheet capacity of broker-dealers to engage in market-making in the Treasury market hasn’t expanded much, while the overall supply of Treasurys has increased.

Related: The next financial crisis may already be brewing — but not where investors might expect

The Treasury Department’s next auction will be an $18 billion 30-year bond reopening Thursday afternoon.

What analysts say

“CPI remains too sticky and coming down much too slowly: 8.2% vs. 8.1% expected,” said  Jan Szilagyi, CEO and co-founder of investment research firm Toggle AI.

“This is [the] Fed’s nightmare scenario: the risk that inflation stays entrenched because services inflation is far harder to bring down than energy inflation,” Szilagyi said. “The Fed will see this as a license to stay aggressive while the labor markets remain strong and the public tolerates rate hikes. More than that, they will maintain a hawkish message to avoid [the] perception that they are tiptoeing around the issue.”


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