10-year Treasury yield races back to 5% as inflation data, Waller comments drive rate hike expectations

Treasury yields jumped on Tuesday after the U.S. consumer price index data for October came in hotter than expected.

The yield on the 2-year Treasury note, which more closely follows short-term Fed rate decisions, added more than 20 basis points to 4.755%. The yield on the 10-year Treasury note — the benchmark for mortgages, car loans and credit card rates — climbed more than 14 basis points to 5.004%. The 30-year Treasury bond yield, more sensitive to geopolitical developments, rose more than 10 basis points at 5.364%.

One basis point equals 0.01% or 1/100th of 1%, and yields and prices move inversely to one another.

The consumer price index for October grew 0.4%, more than the 0.3% expected from economists polled by Dow Jones and down from the 0.6% growth in September.

Core CPI, which excludes volatile food and energy prices, gained 0.3%. Economists had expected a 0.2% gain on the month. The reading was in line with September's 0.3% rise.

The report came after Fed Governor Christopher Waller said he would support "more robust action" if inflation readings are higher than expected.

"In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting," Waller said in London at a central bank conference hosted by the Bank of England. "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take."

Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said the hot CPI numbers signal that Fed hikes could spill into 2027.

"The Fed could push for a more-aggressive tightening cycle with CPI continuing to print strong," she said. "A December hike is our firm base case despite wider AI jitters, and stubborn inflation means we cannot rule out further hikes in 2027."

Oil prices dipped further on Tuesday morning, with Brent crude falling below $90 a barrel for the first time since August. This comes on the back of President Donald Trump's comments that the war with Iran could end "fairly soon" as he played down the prospect of further strikes in the region.

Tuesday's CPI data, together with wholesale inflation numbers due Friday, may shape the Federal Reserve's future decisions on interest rates in the U.S. Markets have already largely priced in a 25 basis point hike in December, according to CME Group's FedWatch.

It comes after U.S. employment data came in considerably stronger than Wall Street was expecting last week, with 165,000 jobs added in October, more than double forecasts.