US Treasury yields are edging closer to the critical 5% mark ahead of the latest consumer price index (CPI) report, which is expected to show stable underlying inflation in December, Bloomberg reports.
The data, set for release Wednesday, could further elevate bond yields that have already surged to multi-year highs.
Recent months have been marked by persistent inflation and a strong labor market, both of which have complicated the Federal Reserve’s ability to cut interest rates further. This environment has driven a selloff in the bond market, pushing Treasury yields to levels not seen in nearly two years.
The 10-year Treasury yield dipped slightly to 4.77%, maintaining its highest levels since November 2023. Meanwhile, the yield on the 30-year note briefly surpassed the 5% threshold before settling just below it. This occurred despite a December report showing wholesale prices rose less than expected, an outcome that might have otherwise tempered the bond market selloff.
Since September, the benchmark 10-year yield has climbed over a percentage point, reflecting reduced expectations of aggressive Federal Reserve rate cuts. The Fed has cut rates by a full percentage point since September, but resilience in economic growth has increased concerns about inflationary pressures.
December’s CPI is expected to show a year-over-year increase of 3.3% in underlying consumer inflation, consistent with the previous three months. Such stability could reinforce expectations of a cautious approach from the Federal Reserve.
Roger Hallam, global head of rates at Vanguard, noted that significant inflation surprises in the coming months could lead markets to further adjust expectations for rate cuts.
“If you were to see substantial inflation surprises… the market would move to price out that additional Fed rate cut,” he said.
However, softer inflation figures—such as unexpectedly low rent measures—could ease the recent rise in yields. Brian Smedley, chief investment officer of the Cynosure Group, highlighted the broader context, pointing out that concerns about inflation have been exacerbated by factors such as tariffs and shifts in migration flows under President-elect Donald Trump’s incoming administration.
Swaps traders currently predict just one additional quarter-point rate cut by the Fed this year, likely in September.
