Bonds slipped after the inflation report, with the 10-year yield up just over 2 basis points to 5.242%. Earlier in the session it touched its highest mark since Oct. 8. The 30-year yield, often the most sensitive to geopolitical headlines, inched higher by under a basis point to 5.568%.
The 2-year note - often used as a read on future Fed moves - added more than 5 basis points, landing at 4.852%, having earlier notched its highest level since Sept. 29. For context, one basis point is 0.01%, and when yields rise, bond prices fall.
Snapshot quotes around the move showed: U.S. 10 Year at 5.236% (up 0.019), 1 Month at 4.001% (up 0.02), 1 Year at 4.537% (up 0.068), 2 Year at 4.844% (up 0.051), 30 Year at 5.561% (down 0.002), 3 Month at 4.206% (up 0.024), and 6 Month at 4.39% (up 0.045).
The ten-year yield reprices mortgages and equities together. Market Briefs covers the bond market free every morning.
Inflation came in hotter than anticipated. Core inflation, which excludes food and energy, printed at an annualized 2.6% versus a 2.5% consensus. The report hit about two weeks ahead of the Fed's next interest rate decision.
Christopher Rupkey, chief economist at Fwdbonds, summed up the tone: "The bond bulls have turned around and are running the other way as 10-year yields have shot higher after today's shocking inflation report." He added, "Inflation is alive and the only way the Warsh Fed knows how to kill it is with another dose of higher rates." He also said that if inflation stays sticky, the central bank might have to raise rates again and leave them elevated into 2027.
Traders quickly repriced the odds of action. The probability of a 25 basis point move on Oct. 28 rose to roughly 39% from 22.1% the prior day, according to CME's FedWatch tool. Markets are pricing in a better than 95% probability that at least one hike will occur before year-end, and put the odds near 40% that rates finish a half percentage point higher - twice yesterday's likelihood. The current fed funds target range is 3.75% to 4.00%.
Next up Thursday: the September producer price index, September retail sales, and weekly initial jobless claims. Those will help show whether pricing pressure is broadening and how consumer spending is holding up. For your wallet, higher long-term yields can ripple into mortgages, auto loans and credit cards, so it pays to watch where these moves settle.
Inflation data moves the long end before it moves policy. Get the free Market Briefs daily newsletter and follow it.
