Fed Rate Hike Odds Soar on Sizzling US Inflation Data
US producer inflation numbers released on Thursday revealed a 5.4% year-over-year increase in August, exceeding expectations of 5.3%. This development has strengthened the case for another Federal Reserve interest rate hike and is likely to contribute to higher Treasury yields.
The 10-year Treasury yield surged to 4.96%, nearing the critical 5% level, while the 30-year yield reached its highest since 2007. As a result, Bitcoin fell below $77,000 as investors reduced their exposure to risk assets.
Despite efforts by the US Treasury to contain yields through larger buybacks, bond market concerns outweighed these attempts. Padhraic Garvey from ING's head of global rates and debt strategy noted that the $6 billion buyback could be just an 'opening gambit,' while Tony Miano of Wells Fargo Investment Institute said Treasury buybacks were unlikely to materially overcome the forces pushing yields higher.
The next major catalyst for inflation expectations comes on Friday with the release of the August Consumer Price Index. A stronger-than-expected reading could reinforce expectations for a September rate hike and potentially push the 10-year Treasury yield through 5%.