U.S. Treasury yields hold near multiyear highs as August CPI fuels Fed rate hike expectations

U.S. Treasury yields were remained at or near multiyear highs Friday, as bond markets assessed the latest consumer price report for August.

Odds that the Federal Reserve will raise interest rates by a quarter percentage point at its policy meeting next week shot up to 90% from about 72% on Thursday, based on trading in 30-day fed funds futures at the Chicago Mercantile Exchange.

The 2-year Treasury note yield, the most sensitive to short-term Federal Reserve interest rate policy, rose 7.8 basis points, to 4.628% after earlier climbing almost 11 bps. The 10-year U.S. Treasury note yield —the benchmark for mortgages, auto loans and credit card debt — gained 2.9 basis points to 4.97% after earlier rising 3 basis points to approach 5.00%.

The longer-dated 30-year Treasury bond yield, more sensitive to geopolitical risks, was little changed to 5.356%, after earlier trading at 5.36%.

One basis point equals 0.01%, and yields and prices move in opposite directions.

Prices for a wide swath of goods and services continued to climb in August, according to a report Friday that could be the deciding factor on whether the Federal Reserve raises interest rates next week.

The consumer price index rose a seasonally adjusted 0.4% last month, putting the 12-month increase at 3.4%, the Bureau of Labor Statistics said. Both readings matched the Dow Jones consensus while remaining far above the central bank's goal of 2% inflation.

Stripping out volatile food and energy prices, however, so-called "core" CPI posted a 0.3% monthly gain, or 0.1 percentage point higher than economists had forecast. The core annual rate came in at 2.4%, in line with the consensus estimate on Wall Street.

The report is the final major inflation indicator the Fed will see before it holds its policy meeting next week, ending next Wednesday with a vote on its key interest rate, which currently stands at 3.50% to 3.75%.

Treasurys suffered a sharp sell-off Thursday, as U.S. oil prices topped $100 a barrel amid further escalation in the Middle East.

Meanwhile, the Treasury Department bought back about $5.2 billion in off-the-run 10-year notes and 20-year bonds Thursday — roughly half of the $10.5 billion offered — dialing up the selling pressure on bonds.

The 10-year note yield jumped 11 basis points during the day, touching 4.954% — its highest since October 2023.

Also on Thursday, August's wholesale inflation report showed prices rose 0.4% last month, in line with consensus estimates. Removing food and energy, core wholesale inflation moved 0.2% higher for the month, below forecasts of 0.3%.

Oil prices were lower Friday, with West Texas Intermediate futures off 3.3% to $99.14 a barrel and Brent crude , the international benchmark, lower by 3.1% to $104.27 a barrel.

— With additional reporting by CNBC's Jeff Cox