US yields surge after inflation data alters Fed view
U.S. Treasury yields climbed on Tuesday, with the 10-year yield hitting a two-month high, after a reading on inflation came in above estimates, pushing out market expectations for when the Federal Reserve will cut interest rates until later this year.
The consumer price index (CPI) increased 0.3% last month after gaining 0.2% in December amid a surge in the cost of shelter, the Labor Department said on Tuesday. In the 12 months through January, the CPI increased 3.1%. Economists polled by Reuters had forecast the CPI would gain 0.2% on the month and 2.9% on a year-on-year basis.
The yield on the benchmark U.S. 10-year Treasury note rose 11.1 basis points to 4.281% after reaching 4.297%, it's highest level since Dec. 4. The yield on the 30-year bond rose 8.2 basis points to 4.4521% after hitting a two-month high of 4.454%.
«A slightly hot CPI really sent a chill down the spine of investors. The Fed doesn't have a coherent set of criteria for cutting, so for all we know this resets the clock,» said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
«If cutting is a confidence game, we don't know when enough progress is enough or whether mild setbacks undermine their confidence. No wonder bond volatility is elevated.»
After the data, expectations rose that the Fed will likely not cut rates until its June 11-12 policy meeting, with CME Group's FedWatch Tool showing a 78.5% chance for a cut of at least 25 basis points at that meeting. Expectations for a cut at the April 30-May
