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Treasury yields surge as hot inflation fuels Fed hike bets; 10-year tops 5.15%

US Treasuries are set for their worst week since Trump's 'liberation day' announcement.

By Yash Upadhyaya

Key takeaways

  • US Treasuries are set for their worst week since Trump's 'liberation day', as hotter producer prices lifted the 10-year yield above 5.15%. Traders now see a 100% chance of a Fed rate hike on December 9, while oil slipped for a second week.
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Key points

  • US Treasuries are set for their worst week since Trump's 'liberation day' announcement.
  • The 10-year yield rose 5 basis points to more than 5.15% on Friday as producer prices hit their biggest annual rise since November 2022.
  • Traders now price a 100% chance of a Fed rate hike at the December 9 meeting.

US Treasuries are on course for their worst week since Trump's 'liberation day', according to Financial Times. Investors who bet the global bond rout was over have been caught out by higher-than-expected inflation and hawkish remarks from Fed officials.

The move hits the benchmark that sets mortgage, auto loan and credit card rates. The 10-year yield rose 5 basis points to more than 5.15% on Friday, after jumping more than 13 basis points on Thursday to above 5%.

The 2-year note yield, which is most sensitive to short-term Fed decisions, was at 4.872%, up less than 1 basis point on Friday after soaring more than 15 basis points on Thursday. The 30-year bond yield, which is sensitive to geopolitical risk, rose more than 5 basis points to 5.481%.

October producer prices rose 0.3% from September, below the 0.4% economists polled by Dow Jones had expected. On an annual basis, though, producer prices climbed 6.5%, the biggest annual increase since November 2022. Core PPI, which excludes food, energy and trade services, rose 0.5% in October.

Chris Rupkey, chief economist at FWDBONDS, said there was 'no silver lining' in the report. He argued that producer prices lead consumer prices, so consumers face a fresh burst of factory inflation.

Traders are pricing a 100% chance of a rate rise at the Fed's December 9 meeting, according to the CME Group's FedWatch tool. Within that, odds of a quarter-point hike stand at 86%, with a half-point increase at about 14%.

According to Bloomberg, hopes that the worst of this year's bond selloff was over were shattered as yields surged. Energy remains a key part of the picture. West Texas Intermediate for December delivery was down 0.1% at $88.63 a barrel, and Brent was up 0.3% at $96.11. Oil is set for its second weekly decline as prospects of renewed US strikes against Iran fade.

What's next: The Fed's December 9 policy meeting is the next test of the rate-hike bets now priced into Treasuries.

Sources: Bloomberg, CNBC, Financial Times

Sources