Treasury Yields Jump Most Since 2025 as Fed Hike Bets Build
The 2-year Treasury yield rose 17 basis points in a day after hotter October inflation and a Fed governor's call to weigh a half-point hike.
Short-term U.S. government bond yields posted their biggest one-day rise in more than a year and a half this week, as a hotter-than-expected inflation report and unusually blunt comments from a Federal Reserve policymaker pushed investors to bet that the central bank will keep raising interest rates. The yield on the 2-year Treasury note climbed 17 basis points, or 0.17 percentage point, to 4.73% on Tuesday, Nov. 10, according to Treasury Department data cited by 24/7 Wall St.
What happened
The move came after the Labor Department’s consumer price index (CPI), the main U.S. measure of inflation, showed prices rose 0.4% in October. Core inflation, which strips out volatile food and energy costs, rose 0.3%, above forecasts of 0.2% and the third straight month at that pace.
Strategists at Deutsche Bank, in comments compiled by the financial news site FXStreet, said the repeated 0.3% readings made it “increasingly difficult to dismiss this as a blip.” They calculated that core prices rose at an annualized rate of about 3.75% over the past three months, the fastest since April 2024, well above the Fed’s 2% target.
Before the data was released, Christopher Waller, a member of the Federal Reserve’s Board of Governors, told an audience in London that if core inflation came in around 0.3% or higher, a “50 basis point hike in the policy rate should be considered” at the Fed’s December meeting, 24/7 Wall St. reported. Waller also argued that a smaller, quarter-point move alone could put the Fed’s credibility at risk.
The reaction was sharpest at the short end of the bond market, which tracks expectations for Fed policy most closely:
- The 1-year Treasury yield rose 18 basis points to 4.56%.
- The 2-year yield rose 17 basis points to 4.73%, from 4.56% on Monday.
- The 10-year yield, a benchmark for mortgages and other long-term loans, rose 10 basis points to 4.98% after briefly topping 5% during the session.
According to 24/7 Wall St., the 2-year’s jump was the largest in Treasury’s daily records since April 9, 2025, when tariff turmoil sent that yield up 20 basis points. Deutsche Bank’s strategists likewise described it as the biggest daily rise since 2025. Some other outlets have framed the surge over different time periods, so comparisons vary depending on the measure used.
Why it matters for households
Markets now see a December rate increase as close to certain. After the inflation data, futures pricing pointed to a 91% chance of a quarter-point hike and a 9% chance of a half-point move, 24/7 Wall St. reported, compared with a 77% chance of a quarter-point hike and a 23% chance of no change a week earlier. Deutsche Bank’s strategists said pricing now reflects a longer and more aggressive tightening cycle stretching into 2027.
Because short-term borrowing costs tend to follow the 2-year yield, higher rates can show up quickly in household finances. Yields on Treasury bills, money market funds and certificates of deposit typically rise, which benefits savers. Borrowers with credit card balances, home equity lines of credit or adjustable-rate loans, by contrast, generally face higher interest charges. The 10-year yield’s brush with 5% also matters for home buyers, since 30-year mortgage rates loosely track that benchmark.
The bond market’s reaction also hit investors holding longer-dated Treasuries. The iShares 20+ Year Treasury Bond ETF, a widely traded fund of long-term government bonds, fell 1.32% on Tuesday, while a fund of 1- to 3-year Treasuries fell 0.33%, according to 24/7 Wall St.
Background
The Federal Reserve, led by Chair Kevin Warsh, raised its benchmark federal funds rate by a quarter point in September, its first increase in about three years, and left it unchanged in October. The rate currently sits in a range of 3.75% to 4.00%. Inflation has been pushed higher this year in part by rising oil prices.
Wall Street forecasters are adjusting. Goldman Sachs added a second quarter-point hike to its outlook, most likely in March 2027, which would lift the federal funds rate to a peak range of 4.25% to 4.50%, 24/7 Wall St. reported.
What comes next
The cash bond market was closed on Wednesday, Nov. 11, for Veterans Day and reopens Thursday. Investors will next look to the October producer price index, a gauge of wholesale inflation, due Nov. 13. The Fed’s final policy meeting of the year is scheduled for Dec. 8-9, with November CPI data due on Dec. 10, the day after that decision.
Uncertainty remains high. A fourth straight core reading of 0.3% or more would likely add to pressure for bigger hikes, while a clear cooling in prices could reverse much of this week’s move in yields.
