Bond Yields Jump on Higher U.S. Inflation, 10% Chance of 50-Basis-Point Rate Hike

Key Facts

Global government bonds fell on November 11 after U.S. inflation data and Federal Reserve officials’ remarks heightened concerns about greater monetary tightening in December. Reuters said the selloff followed a higher-than-expected inflation reading and hawkish comments from central bank officials, while the dollar held steady. But futures pricing did not indicate that a 50-basis-point rate increase was the most likely scenario. Futures showed only a 10% chance of that increase, while a quarter-point increase in December was considered nearly certain. This refocused investors on inflation’s impact on the path of U.S. interest rates and the spread of yield pressures to debt markets outside the United States.

The repricing quickly affected shorter-dated U.S. Treasuries, with the two-year yield jumping 18 basis points overnight. The selloff spread to Asia, where the 10-year Japanese government bond yield rose 7 basis points to 2.755%. The Australian yield also climbed 6 basis points to 5.05%. These moves highlight the widening impact of U.S. price data on bond markets as investors adjust their expectations for borrowing costs. The U.S. Treasury market was closed for Veterans Day, according to the report’s context, while yield movements appeared in Asian trading.

The U.S. Consumer Price Index for All Urban Consumers stood at 337.511 in October, on a 1982–84=100 reference base, according to the Bureau of Labor Statistics. The index rose 0.2% during the month before seasonal adjustment. Core inflation, which excludes food and energy, increased 0.3% in October, the same pace recorded in September and August. The continuation of this monthly increase leaves investors facing a picture in which underlying price pressures remain present, even as index components move differently. The index reading and its details were central to the bond selloff following the data release.

Energy components did not all move at the previous pace: the energy index rose 0.7% in October after a 5.2% increase in September, according to the Bureau of Labor Statistics. The gasoline index’s increase slowed to 1.0% during the month, from 9.1% in the previous month. This slowdown in monthly increases in energy and gasoline offers another dimension to the October reading, alongside the continued 0.3% rise in core inflation. On monetary policy, Dallas Federal Reserve President Lorie Logan said two more rate increases were needed, perhaps at a rapid pace. Chicago Federal Reserve President Austan Goolsbee described the situation as

a real inflation problem,

in comments that reinforced the hawkish tone Reuters linked to the bond selloff.