10-year Treasury yield jumps after hot CPI, Waller half-point hike comment

Treasury yields jumped on Tuesday after the U.S. consumer price index data for October came in hotter than expected.

The yield on the 10-year Treasury note — the benchmark for mortgages, car loans and credit card rates — was up by more than 7 basis points to 4.938%. The 30-year Treasury bond yield, which is often impacted by geopolitical developments, was up more than 3 basis points at 5.29%. The yield on the 2-year Treasury note, which more closely follows short-term Fed rate decisions, climbed more than 15 basis point to 4.698%.

One basis point equals 0.01% or 1/100^th of 1%, and yields and prices move inversely to one another.

The consumer price index for October grew 0.4%, more than the 0.3% expected from economists polled by Dow Jones and down from the 0.6% growth in September.

Core CPI, which excludes volatile food and energy prices, gained 0.3%. Economists had expected a 0.2% gain on the month. The reading was in line with September’s 0.3% rise.

The report comes after Fed Governor Christopher Waller said he would support “more robust action” if inflation readings are higher than expected.

“In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” he said. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

Oil prices dipped further on Tuesday morning, with Brent crude falling below $90 a barrel for the first time since August. This comes on the back of President Donald Trump’s comments that the war with Iran could end “fairly soon” as he played down the prospect of further strikes in the region.

Tuesday’s CPI data, together with wholesale inflation numbers due Friday, may shape the Federal Reserve’s future decisions on interest rates in the U.S. Markets have already largely priced in a 25 basis point hike in December, according to CME Group’s FedWatch.

It comes after U.S. employment data came in considerably stronger than Wall Street was expecting last week, with 165,000 jobs added in October, more than double forecasts.