U.S. Treasury yields surged higher on Tuesday, with the two-year maturity rising to a fresh post-2007 high, with consumer-price index inflation for August rising against expectations for a fall for the month.
- The yield on the 2-year Treasury TMUBMUSD02Y, 3.745% rose 18 basis points to 3.746%.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.440% rose 8.6 basis points to 3.445%.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.544% advanced 6 basis points to 3.572%.
What’s driving markets
The U.S. Labor Department took investors by surprise Tuesday when it revealed that inflation accelerated at a monthly rate of 0.1% in August, compared with the drop of 0.1% expected by economists polled by the Wall Street Journal.
See: U.S. inflation slows again due to cheaper gas, CPI shows. But prices still high for almost everything else
Fed funds futures traders are now pricing in an 80% chance that the Federal Reserve will raise its benchmark interest rate by 75 basis points later this month, and a 20% chance of a 100 basis-point hike, according to the CME’s FedWatch tool. Typically, short-term Treasury yields are the most sensitive to rate-hike expectations.
“This belief on the part of some that inflation figures are just going to collapse from here is just not reality. Inflation is generally peaking for sure and for many things will continue to fall but the pace at which it will is going to be gradual,” wrote Peter Boockvar in his newsletter “the Boock Report”.
In other bond-market news, there’s also an $18 billion 30-year bond reopening at 1 p.m.