On Thursday, Treasury yields experienced a significant spike, with the 10-year Treasury yield surging by approximately 12 basis points. This surge in yields followed the release of the September Consumer Price Index (CPI) report, which underscored ongoing concerns about elevated inflation rates.
The 10-year Treasury yield, a key benchmark for interest rates in the financial markets, rose by 12 basis points to reach 4.714%. This level is in proximity to the 16-year high that had been reached the previous week. The bond market has been experiencing considerable volatility recently, witnessing a historic sell-off as investors reassess their expectations regarding the longevity of elevated interest rates.
Earlier in the same week, on Tuesday, the 10-year Treasury yield had seen its steepest single-day decline in the form of a 15 basis point drop. This marked a noteworthy deviation from the general trend, with the decline being the most significant since the implosion of Silicon Valley Bank in March.
The September CPI report confirmed that inflation rates continue to remain elevated. Prices increased by 3.7% on an annualized basis in September, slightly surpassing the anticipated 3.6% increase. This figure was consistent with the previous month’s reading, which indicates a persistent inflationary trend.
The Core CPI, which excludes food and energy prices, also saw an increase, rising by 4.1% compared to the previous year.
In response to the CPI report, CME fed fund futures indicated that investors now perceive a 31% probability of the Federal Reserve raising interest rates at its December meeting, a significant uptick from the 14% probability recorded just the day before.
Charlie Ripley, the Senior Investment Strategist for Allianz Investment Management, offered insights into the implications of the CPI data on Fed policy. He noted, “As it pertains to Fed policy, today’s CPI data doesn’t provide additional impetus for the Fed to act at the upcoming November 1 meeting. Overall, consumer price data continues to be on track to moving towards the Fed’s stated two-percent target, but it’s likely we will continue to see some bumps along the way like the small upside surprise today.”
Furthermore, long-dated Treasury yields were impacted by the lukewarm response to the latest auction of 30-year bonds by the government. The Treasury managed to sell $20 billion worth of 30-year notes at a yield of 4.837%, the highest level seen since 2007. Reports indicate that weak demand from foreign buyers resulted in large banks acquiring a larger share of the debt than they typically do at government bond auctions. This outcome adds to the overall unease in the bond market and further underscores concerns regarding inflation’s influence on market dynamics.