Two-year Treasury yield jumps 18.44 basis points to 4.731% after inflation tops forecasts

Key Facts

The yield on two-year U.S. Treasury notes jumped 18.44 basis points to 4.731% on Tuesday, November 10, its biggest daily increase since the tariff turmoil in April 2025, according to Reuters. The move came after Bureau of Labor Statistics data showed consumer prices rose 0.4% in October on a seasonally adjusted monthly basis, exceeding economists’ forecast of 0.3%. The reading, along with comments from Federal Reserve officials, prompted bets on tighter monetary policy in December. Fed Governor Christopher Waller said he supported a 25-basis-point rate increase at that meeting. He added that inflation running much higher than expected could call for “more forceful action.”

The monthly increase in the headline index slowed to 0.4% in October from 0.6% in September, but the core reading remained at 0.3% for a third consecutive month, according to the Bureau of Labor Statistics. The core index excludes food and energy and is used to track more persistent price pressures. Core inflation also came in above market expectations, according to Dow Jones coverage published on November 11. The index’s not seasonally adjusted level was 337.511 in October, up 0.2% from the previous month before seasonal adjustment. The difference between the adjusted increase and the unadjusted index level reflects two ways of presenting data for the same month.

Component details showed the food index rose 0.5% in October, while the energy index climbed 0.7% after a larger 5.2% increase in September, according to the Bureau of Labor Statistics. The shelter index rose 0.3%, accounting for more than 30% of the monthly increase in the headline index. This highlights the role of housing costs in the inflation reading, even as energy price growth slowed from the previous month. For the Personal Consumption Expenditures index, another measure tracked by the Federal Reserve, Waller said the index rose 0.5% in September and 3.7% over the previous twelve months. Core PCE rose 0.3% monthly and 3.1% annually in September.

In remarks published by the Federal Reserve on November 10, Waller said he had been prepared to wait for the October meeting, but stressed the importance of delivering previously promised increases within a reasonable period to preserve market expectations. He noted that the preliminary estimate showed real gross domestic product grew at an annualized rate of 3.4% in the third quarter, supported by strong consumer spending and solid investment. By contrast, Lori Logan, president of the Federal Reserve Bank of Dallas, said the Federal Open Market Committee needed to deliver at least two more increases, with their timing and pace depending on the near-term economic and financial environment. Logan said inflation had exceeded the Fed’s 2% target for nearly six years and appeared likely to remain materially above it. That stance puts persistent price pressures at the center of the debate over the rate path.

The reaction spread across bonds, stocks, currencies and commodities on Tuesday. The 10-year Treasury yield rose 12.55 basis points to 4.988%, according to Reuters. U.S. indexes fell: the Dow Jones lost 0.30% to close at 52,231.89, the S&P 500 fell 0.38% to 7,520.93, and the Nasdaq dropped 0.74% to 25,065.87. The dollar index rose 0.56% to 102.25, while spot gold fell 2.62% to $4,030.56 an ounce. On rate pricing, an investment strategist at BondBloxx said markets were fully pricing in at least a 25-basis-point increase in December and had begun assigning a meaningful probability to a 50-basis-point increase.

The rise in yields comes as markets anticipate the December decision, without settling the path of subsequent increases, as Logan tied the pace of action to near-term economic and financial conditions. BondBloxx said it expected a 25-basis-point increase in December, with the possibility of continued tightening at later meetings. In the near term, the Bureau of Labor Statistics is scheduled to publish the October Producer Price Index on Friday, November 13, at 8:30 a.m. Eastern time. The November Consumer Price Index report is due on December 10 at 8:30 a.m. Eastern time. The Treasury market was closed on Wednesday, November 11, for Veterans Day.