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Bond Report: Treasury yields above 4% after U.K. inflation moves back into double digits

Stubborn fast pace of price rises reminds investors central banks will need to hike interest rates further. Read More...

Bond yields rose on Wednesday after stubbornly high U.K. inflation data reminded investors that central banks remained on course to raise borrowing costs further.

What’s happening
  • The yield on the 2-year Treasury TMUBMUSD02Y, 4.520% gained 4.7 basis points to 4.490%. Yields move in the opposite direction to prices.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 4.081% rose 5.7 basis points to 4.068%.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 4.078% climbed 3.7 basis points to 4.067%.
What’s driving markets

Treasury prices moved lower, tracking falls in the U.K. equivalent gilt TMBMKGB-10Y, 4.010%, after data showed Britain’s inflation moving back up to a 40-year high of 10.1%.

The faster-than-expected British consumer price rises reminded investors that central banks in most major economies will continue to battle inflation by hiking borrowing costs.

“Higher global bond yields are a byproduct of the December Gilt future trading down after strong UK CPI,” said Stephen Innes, managing partner at SPI Asset Management.

The benchmark 10-year Treasury yield moved further above the psychologically significant 4% mark as markets priced in a 94.7% probability that the Fed will raise interest rates by another 75 basis points to a range of 3.75% to 4.00% after its meeting on November 2nd.

The central bank is expected to take its Fed funds rate target to 4.9% by April 2023, according to the CME FedWatch tool.

U.S. economic updates set for release on Wednesday include September building permits and housing starts at 8:30 a.m. and the Federal Reserve’s Beige Book of anecdotes at 2 p.m. All times Eastern.

Minneapolis Fed President Neel Kashkari is due to speak at 1 p.m. and Chicago Fed President Charles Evans will deliver comments at 6:30 p.m.

The Treasury is due to sell $12 billion of 20-year bonds on Wednesday at 1 p.m..

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