Treasury Yields Surge as Inflation Concerns Mount, Rate Hike Odds Rise to 70%

Treasury yields rose sharply on Thursday as fresh inflation data increased expectations for a Federal Reserve rate hike next week. The move came after the latest producer price index (PPI) reading showed a monthly increase in line with economist forecasts, driven mainly by higher energy costs. The PPI rose 5.4% on an annual basis through August, above the forecast of 5.3%. Energy prices jumped 4.2% during August.

The increased inflation expectations put pressure on the bond market, causing Treasury yields to rise. The 10-year Treasury yield climbed 8.48 basis points to 4.922%, reaching its highest level since November 2023. The 30-year Treasury yield also moved higher, rising 6.51 basis points to 5.3511%, with an earlier peak of 5.3543%, its highest since June 2007.

The Federal Reserve's decision next week will provide the clearest signal on whether policymakers see inflation as strong enough to justify another rate increase. Until then, Treasury yields could remain highly sensitive to every new inflation and energy market reading.