U.S. 10-Year Treasury Yield Jumps to 5.12% in November 12 Session
Key Facts
The U.S. 10-year Treasury yield rose to 5.12% in the November 12 session, from 4.98% late Tuesday, as oil prices climbed and inflation concerns resurfaced, according to the Associated Press. The move followed the bond market’s Wednesday closure for Veterans Day. In the same session, the two-year yield rose 13.96 basis points to 4.867%, and the 10-year yield climbed 12.39 basis points to 5.113%, according to Reuters. Investors priced in nearly an 85% chance that the Federal Reserve would raise rates in December, according to CME Group’s FedWatch tool, as reported by Reuters. The moves reflected growing bets that monetary policy would remain tight as price pressures persisted.
The yield surge followed October inflation data showing that the monthly increase in the headline consumer price index slowed to 0.4% from 0.6% in September, according to the U.S. Bureau of Labor Statistics. But the core index, which excludes food and energy, rose 0.3% in October, the same monthly increase recorded in August and September. The shelter index accounted for more than 30% of the monthly increase in the headline index, rising 0.3% in October. Reuters linked the yield move in the November 10 session to a higher-than-expected inflation reading, which it said bolstered the odds of a large rate increase the following month. The figures provide context for bets on the rate path, while the monthly core index increase remained steady for three consecutive months.
In remarks during the week, Federal Reserve officials said inflation remained stubbornly high, and some signaled they were prepared to raise rates by 50 basis points if price pressures did not ease, according to Reuters. Fed Governor Christopher Waller said on November 10 that he would support a 25-basis-point increase at the December meeting even if the inflation reading improved from September. He added: "I would continue to support a 25-basis-point increase in the federal funds rate target set by the Federal Open Market Committee at the December meeting." Waller said a reading far above expectations could warrant a more aggressive move, according to Reuters. His remarks reflect a stance conditioned on the data path, while no decision has yet been made at the December meeting.
The market move on November 12 also included a 3.3% rise in Brent crude to $95.82 a barrel, according to the Associated Press. Since the U.S.-Israeli war with Iran broke out in late February, the most actively traded Brent contract has ranged from about $70 to $120 a barrel, the agency reported. Rising oil prices link energy-market developments with the inflation concerns accompanying the rise in Treasury yields during the session. Higher yields increase borrowing costs for the government, companies and individuals, according to the Associated Press. High mortgage rates also helped push U.S. existing-home sales in October to their slowest pace in more than 16 years, the report said.
At its September meeting, the Federal Reserve raised its target interest-rate range by a quarter percentage point to 3.75%–4%, and the committee voted unanimously on the statement, according to the Fed. The meeting statement said economic activity was expanding at a solid pace and inflation remained elevated, with uncertainty continuing, partly because of geopolitical developments. Current bets on a December increase follow that move, while expectations differ over whether tightening will be limited to one meeting. Reuters reported that some brokerages, including Goldman Sachs, expect another increase early next year in addition to a December hike. New York Fed President John Williams is scheduled to take part in a panel discussion Thursday evening, according to the report.
Attention first turns to the October Producer Price Index report, scheduled for release on November 13 at 8:30 a.m. Eastern time, according to the Bureau of Labor Statistics. The report will provide another reading on price pressures after the consumer data, while no reliable forecast for the monthly change is available in the open evidence. The Federal Reserve’s next meeting is scheduled for December 8 and 9, with its press conference set for December 9. The Bureau of Labor Statistics has also scheduled the November Consumer Price Index report for December 10 at 8:30 a.m. Eastern time. These dates will follow the December meeting, adding subsequent data to the inflation path policymakers are monitoring.