US Treasury yields surge after hot October CPI, Waller flags 50bp hike
A stronger-than-expected October US inflation report, combined with hawkish Fed commentary, sent Treasury yields sharply higher and pushed markets to price a more aggressive hiking path into 2027.
Core consumer price index (CPI) rose 0.30% on the month, above the 0.2% consensus, marking the third straight month at that pace. Annualised over three months, core CPI is now running at 3.75%, the fastest since April 2024.
Headline CPI came in even hotter, up 0.35% versus an expected 0.3%, putting the three-month annualised rate at 5.72%. Deutsche Bank strategists said the data made it increasingly hard to treat the inflation pickup as temporary.
The reaction in US Treasuries was immediate and broad-based, with yields rising across the curve. Two-year yields posted their largest one-day jump since 2025, while the 10-year yield moved toward the 5% level.
The move was amplified by remarks from Fed Governor Christopher Waller, who raised the possibility of a “catch up” 50 basis point hike, according to TD Securities. That repricing lifted December hike pricing from 25bp to roughly 28bp and pushed expected 2027 tightening up from 34bp to 45bp, flattening the yield curve as front-end yields rose faster than long-end yields. Breakeven inflation rates also widened. TD Securities said markets are now watching for additional Fed officials to confirm whether they share Waller’s view before pricing in a higher probability for December.
Deutsche Bank noted market pricing now reflects an extended and more aggressive Fed hiking cycle stretching into 2027.
Hotter-than-expected US inflation and a more hawkish Fed path tend to push Treasury yields and the US dollar higher, while weighing on equities and rate-sensitive assets such as gold.
Sources: Investing.com (forex); FXStreet; FXStreet