Treasury yields surge as hot CPI likely to keep the Fed aggressive in raising rates

Treasury yields skyrocketed Tuesday as investors bet that high inflation will keep the Federal Reserve aggressive as it tightens monetary policy.

The 10-year Treasury benchmark yield rose 7 basis points and traded at 3.435%. The yield on the 30-year government bond increased by about 4 basis points to 3.558 %.

Meanwhile, the 2-year Treasury yield, the part of the curve most sensitive to Fed policy, rose 17 basis points to 3.735%, reaching its highest level since November 2007. Yields move inversely to prices , and one basis point is equal to 0.01%.

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The consumer price index rose 0.1% for the month and 8.3% over the past year. Economists had expected headline inflation to fall 0.1% month over month, according to Dow Jones estimates. The year-over-year estimate was 8%.

Energy prices fell 5% this month, led by a 10.6% decline in the gasoline index. However, those declines were offset by increases elsewhere.

“We saw this tug-of-war between goods moderation and services continue to be strong. This isn’t a tug-of-war. They’ve both gone up,” said Nomura economist Rob Dent. “Right now I think the Fed will look at this with a lot of concern. This is not good news in this report,” he said.

After the hot inflation poll, markets estimate a 100% chance that the Federal Reserve will raise interest rates by 75 basis points for the third time next week, according to the CME FedWatch tool.

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— CNBC’s Patti Domm and Natasha Turak reported.

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