10-year Treasury yield jumps as September core inflation comes in hotter than expected
Treasury yields moved higher after the latest inflation reading.
Key points
- The 10-year Treasury yield rose more than 7 basis points to 5.289% on Wednesday after September inflation came in above expectations.
- Core inflation, excluding food and energy, was 2.6% on an annualized basis, higher than the 2.5% consensus estimate.
- Odds of a quarter-point Fed rate hike on October 28 rose to 43.7% from 22.1% a day earlier, according to CME's FedWatch tool.
The 10-year Treasury yield climbed on Wednesday after the latest U.S. inflation reading came in hotter than expected. The yield on the 10-year note, a benchmark for mortgages, auto loans and credit card debt, rose more than 7 basis points to 5.289%, its highest level since Oct. 8.
The 30-year Treasury yield was up more than 3 basis points to 5.602%, while the 2-year yield, which tracks Fed rate expectations, gained more than 10 basis points to 4.895%, after earlier hitting its highest level since Sept. 29. One basis point equals 0.01%.
Inflation tops forecasts
The consumer price index rose 3.7% year over year in September, above the Dow Jones consensus estimate of 3.6%. Core inflation, which excludes food and energy prices, came in at 2.6% on an annualized basis, versus the 2.5% consensus estimate.
The report arrived two weeks before the Fed's next interest rate decision.
Inflation is alive and the only way the Warsh Fed knows how to kill it is with another dose of higher rates.
— Christopher Rupkey, chief economist at Fwdbonds
Rate hike odds climb
Futures trading measured by CME's FedWatch tool showed the odds of a quarter-point hike in the fed funds rate on October 28, currently 3.75% to 4.00%, rising to 43.7% from 22.1% a day earlier. There is now a greater than 95% chance of at least one hike before the year is out, including a 40% chance rates rise by a half-percentage point, double the odds from one day ago.
Christopher Rupkey, chief economist at Fwdbonds, said inflation remains sticky and the central bank may need to raise rates higher and hold them there longer in 2027. Investors also await September producer price index and retail sales data and weekly initial jobless claims, all due Thursday.
