October Inflation Exceeds Forecasts
U.S. government bonds sold off Tuesday, Nov. 10, as stronger-than-expected October consumer inflation reinforced expectations for further Federal Reserve tightening. According to CNBC, the consumer price index increased 0.4% for the month, exceeding the 0.3% rise projected by economists surveyed by Dow Jones. The increase nevertheless represented a slowdown from September’s 0.6% gain.
Underlying inflation also surpassed expectations. Core CPI, which removes volatile food and energy prices, rose 0.3%, matching September’s pace but exceeding economists’ forecast of 0.2%. The combination showed that, although overall monthly price growth had eased, both headline and core inflation remained stronger than anticipated heading toward the Fed’s December policy meeting.
Benchmark Yields Climb Across Maturities
The 10-year Treasury yield climbed more than 14 basis points to 5.004%, returning above a threshold it had last crossed earlier in November. The 30-year yield increased more than 11 basis points to 5.367%. Both maturities had reached fresh 24-year highs in October, putting Tuesday’s move against a backdrop of already elevated longer-term borrowing costs.
The two-year Treasury yield, which closely tracks expectations for near-term Fed policy, rose more than 19 basis points to 4.748%. Its larger increase underscored the intensity of the market’s adjustment in shorter-dated debt. Bond prices fall when yields rise, and one basis point equals 0.01 percentage point. The 10-year Treasury is an important reference for borrowing costs, making its renewed move above 5% relevant beyond the government bond market.
Waller Raises the Possibility of a Larger Increase
The inflation release followed comments from Fed Governor Christopher Waller supporting stronger policy action if inflation readings exceeded expectations. Speaking in London at a central bank conference hosted by the Bank of England, Waller said a 50-basis-point increase should be considered at the December meeting under those circumstances. He argued that limiting the move to 25 basis points could jeopardize the central bank’s credibility.
Waller’s remarks were conditional, not an announcement of a policy decision. Markets still largely priced in a quarter-percentage-point December increase, according to CME Group’s FedWatch tool cited by CNBC. Stronger-than-expected U.S. employment data released the preceding Friday had already bolstered expectations for tightening: the reported employment result was more than twice economists’ forecast.
Auction Demand Adds Pressure to Bonds
A lackluster auction of 10-year Treasurys compounded the inflation-driven selloff. BMO Capital economists said trading volumes were strong before the auction and that the 10-year yield had already risen about 12 basis points by the bidding deadline. Yields moved slightly higher after the results, suggesting the auction provided little relief from the day’s selling pressure.
Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, said dealers were left holding 10% of the auction, their largest share since May. He also distinguished the forces affecting conventional Treasurys from those influencing inflation breakevens, a market measure of inflation expectations. In his assessment, falling oil prices were driving breakevens, while conventional bonds were responding to expectations of Fed increases in December and January. Those rate calls were his interpretation, rather than confirmed Fed plans.
Oil Declines as Investors Await Wholesale Inflation
Oil prices moved lower Tuesday morning, with Brent crude falling below $90 a barrel for the first time since August. CNBC linked the decline to President Donald Trump’s comments suggesting the war with Iran could end soon and minimizing the prospect of additional strikes in the region. The oil retreat therefore coincided with, rather than prevented, a sharp rise in Treasury yields.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said persistent inflation could lead to more aggressive tightening. A December increase remained the firm’s base case despite broader concerns surrounding artificial intelligence, and she said further increases in 2027 could not be excluded. Wholesale inflation figures due Friday are the next identified data point that, alongside October CPI, could influence the Fed’s decisions. The size of any December move and the subsequent policy path remain unresolved.
Source: CNBC