U.S. yields jump after hot CPI points to bigger rate hikes
NEW YORK — Treasury yields shot higher
on Thursday after a hotter-than-expected reading of U.S.
consumer prices in September suggested the Federal Reserve will
need to keep interest rates higher for longer to tame sticky
The consumer price index rose 0.4% last month after gaining
0.1% in August, the Labor Department said. Economists polled by
Reuters had forecast the CPI to climb 0.2%.
Core CPI jumped 6.6% on an annual basis, faster than the
6.3% registered in the 12 months through August. Economist had
expected a 6.5% gain in September.
The yield on two-year Treasury notes, which
typically move in step with interest rate expectations, rose
23.5 basis points to a 15-year high of 4.523%.
The numbers were clearly very bad,” said Andrzej Skiba, head
of the BlueBay U.S. fixed income team at RBC Global Asset
Management. “It highlights this situation where almost every
single time inflation is hotter than expected, forcing the Fed
to move the goal posts again.”
Investors have been trying to gauge when the U.S. central
bank will ease its rapid pace of raising rates, what’s been
dubbed a Fed pivot.
The Fed’s rate-hiking pace has been the most aggressive in
decades and has pushed both bonds and stocks into bear markets.
Rates have risen so fast the 10-year’s yield shot up about 69
basis points in September, the biggest monthly gain since July
The Fed’s terminal rate will now likely peak next year at
4.90%, up from previous forecasts of 4.65%, Skiba said.
“We will now be discussing whether the Fed needs to be
tightening even more than previously was priced in to stem
inflation,” he said. “Any hope of a Fed pivot this year is dead
in the water. Now the question is will inflation be able to
cooperate some time in 2023.”
Money markets were pricing in an 88.7% probability that Fed
policymakers would hike rates by 75 basis points when they meet
on Nov. 1-2. An extraordinary 100-basis-point hike was given an
The 10-year Treasury yield rose 14 basis points
to 4.042%, while the yield on the 30-year Treasury bond
was up 8.4 basis points to 3.971%.
The gap between yields on two- and 10-year Treasury notes
, seen as a recession harbinger, widened at -48.3
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
The 10-year TIPS breakeven rate was last at
2.328%, indicating the market sees inflation averaging a bit
more than 2.3% a year for the next decade.
The U.S. dollar five years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed’s
quantitative easing, was last at 2.385%.
Oct. 13 Thursday 9:33 AM New York / 1333 GMT
Price Current Net
Yield % Change
Three-month bills 3.6375 3.7219 0.100
Six-month bills 4.15 4.2973 0.134
Two-year note 99-134/256 4.5057 0.219
Three-year note 99-62/256 4.5233 0.217
Five-year note 99-46/256 4.3101 0.196
Seven-year note 98-12/256 4.2013 0.170
10-year note 89-144/256 4.0464 0.144
20-year bond 87-196/256 4.2975 0.107
30-year bond 83-20/256 3.973 0.086
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap spread 32.75 0.75
U.S. 3-year dollar swap spread 7.50 -1.50
U.S. 5-year dollar swap spread 1.25 -1.50
U.S. 10-year dollar swap spread 1.50 -0.25
U.S. 30-year dollar swap spread -45.25 -0.50
(Reporting by Herbert Lash
Editing by Bernadette Baum)
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