US Inflation Fears Fuel Rate Hike Expectations as Bond Yields Near Three-Year Peaks

The US Consumer Price Index rose by 0.4% in August after edging up 0.1% in July, according to the Labor Department's Bureau of Labor Statistics.

This news prompted traders to increase bets for a rate hike from the Federal Reserve at its upcoming two-day meeting next week, with markets now seeing an 85% chance of a quarter-point hike, compared to around 67% prior to the data.

Bond yields remained elevated due to heightened inflation fears, with the benchmark 10-year Treasury yield briefly touching its highest level in almost three years at 4.9915%. The shorter end also came under strain, with the 2-year yield rising 4.5 bps to 4.6593%.

David Rees, head of global economics at Schroders, said 'Today's inflation data have done nothing to change our view that the Fed is behind the curve.'