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

US Treasury yields rose sharply on Tuesday after a hotter-than-expected consumer price index report and hawkish comments from a Federal Reserve official, according to CNBC. The moves in bonds fed directly into currency and gold markets, where yields and rate expectations are a key driver.

The yield on the 10-year Treasury note, the benchmark for mortgages, car loans and credit card rates, traded above 5% before paring some of its gains. CNBC's market table showed it at 5.00%, up about 0.14 percentage points on the day. The 30-year bond yield rose more than 9 basis points to 5.352%, while the 2-year yield, which closely tracks expectations for Fed policy, surged more than 18 basis points to 4.736%. CNBC noted that 10-year and 30-year yields had already reached 24-year highs in October.

The catalyst was the October CPI report, which came in above forecasts. Separately, Fed Governor Christopher Waller, speaking in London at a central bank conference hosted by the Bank of England, said he would support more robust action if inflation readings came in higher than expected. He said a 50 basis point hike in the policy rate should be considered at the December meeting in that case. CNBC also reported that a mediocre auction of $42 billion in Treasury notes added to the pressure on bonds.

Analysts at ING described the currency-market reaction in their daily FX note. They said Waller's comments, together with the CPI print, contributed to a rise of about 20 basis points in short-dated Treasury yields and a 7 basis point flattening of the 2-10 year curve. ING wrote that the dollar was trading close to its highs for the year after US inflation came in hot for the third month in a row. It said bearish yield-curve flattening is typically supportive for the dollar and negative for procyclical currencies. ING also cautioned that a 50 basis point hike in December may be too aggressive for many FOMC voters who favour gradual tightening, although Waller's remarks keep alive the prospect of further hikes.

Other market summaries pointed to similar moves. Saxo's Market Quick Take said traders had fully priced in a December hike and two additional increases by next June, and that the Treasury selloff was amplified by the liquidation of recently established bullish positions. Saxo said EUR/USD fell from a high of 1.1251 to below 1.1150 at one point on Tuesday, and that gold slumped around 2% to near $4,000 before rebounding to about $4,055. CaixaBank Research said the 2-year Treasury registered its largest daily rise since April 2025, with the dollar up 0.6% and gold down 2.6% to around $4,030 an ounce.

The link between yields and gold is straightforward in principle. Gold pays no interest, so higher yields on government bonds raise the opportunity cost of holding it, and a stronger dollar makes it more expensive for buyers using other currencies. Higher US yields relative to those elsewhere also tend to support the dollar against currencies such as the euro and the yen.

The data and Waller's remarks show how sensitive markets currently are to inflation readings. The next steps will depend on upcoming inflation and labour-market data and on communication from the Fed ahead of its 9 December meeting, as cited by ING. Rate expectations can change quickly as new data arrive, and nothing in the current pricing guarantees what the Fed will decide or how currencies and gold will move afterwards.

This article is for information only and does not constitute financial advice or a recommendation to trade.

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