US Treasury yields jumped on Tuesday after data showed that US consumer prices rose more than economists expected in October, leading traders to bolster bets on a larger interest rate hike at the Federal Reserve’s December 8-9 meeting.
The Consumer Price Index rose 0.4 percent last month after advancing 0.6 percent in September, while core prices, which exclude the volatile food and energy components, increased 0.3 percent last month, matching September's gain.
Fed funds futures traders are now pricing in a hike of 29 basis points at the Fed’s December 8-9 meeting, indicating rising expectations that the Fed could make a larger-than-usual 50 basis point increase.
The data follows comments from Fed Governor Christopher Waller that the US central bank ought to raise short-term borrowing costs in December even if data shows inflation cooled last month. He added that it should consider an upsized half-point rate hike if the inflation picture worsens.
If core consumer prices rise 0.3 percent or more from September, "a stronger policy move may be needed," Waller said. "In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting."
The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 14.44 basis points to 4.691 percent.
The yield on benchmark US 10-year notes rose 7.17 basis points to 4.934 percent.
Reuters
