Treasury yields jump as hot US inflation firms up December rate rise
US government bonds sold off on Tuesday after core consumer prices rose 0.3% in a month, hardening trader bets that the Federal Reserve will raise interest rates at its December meeting. Yields on Treasuries maturing in two to five years climbed more than 10 basis points, while the 10-year note rose 5 basis points to 4.94% ahead of a US$42 billion auction of new paper.
The Bureau of Labor Statistics reported that overall prices climbed 0.4%. It did not publish year-over-year changes because data collection was interrupted last October during the government shutdown. The reading followed Friday's labour market data, which showed solid hiring and an unexpected jump in wage growth.
Fed governor Christopher Waller said in London that he supported a rate increase and would favour a half-point move if inflation kept accelerating. Traders responded by pricing in at least two hikes by the middle of 2027 and a small chance of a half-point rise in December. "Clearly, the 50 basis point hike is on the table for discussion," said Tiffany Wilding, an economist at Pacific Investment Management Co.
"The Fed skipped October and now will probably need to do some make up," said Alex Pelle, senior US economist at Mizuho. The "debate will likely be between 25 versus 50 basis points at the December meeting, not zero versus 25."
Treasuries had already recovered some of this year's losses on safe-haven demand, after multi-decade yield peaks in early October, as war in Iran and elevated energy costs kept inflation concerns alive. A Democratic sweep in the midterms sharpened worries about the sustainability of spending on artificial intelligence infrastructure, triggering a stock market selloff. "If you look at what has occurred in terms of the economic data, it would suggest that we could see yields rise — and perhaps back to 5% for the 10-year," said Kevin Flanagan, head of investment strategy at WisdomTree.
What it means for Pakistan: A December Fed hike and a 10-year Treasury yield near 5% would keep global dollar borrowing costs elevated, adding pressure on Pakistan's external financing and on the rupee, while making dollar assets more attractive relative to Pakistani savings. Higher US yields also tend to pull capital toward dollar markets, a headwind for emerging-market assets and for Pakistani investors holding global funds.
