U.S. Treasury yields climbed on Thursday, with the benchmark 10-year rate breaching the 2% level, after key inflation data showed hotter-than-expected price pressures.
The yield on the 10-year Treasury note jumped 8 basis points to hit a session high of 2.01%, the first time that the benchmark rate reached the threshold since August 2019.
The yield on the 2-year Treasury bond, the most sensitive duration to interest rates, surged 15 basis points to top 1.50%. Yields move inversely to prices and 1 basis point is equal to 0.01%.
The consumer price index, which measures the costs of dozens of everyday consumer goods, rose 7.5% compared to a year ago, the Labor Department reported Thursday.
That compared to Dow Jones estimates of 7.2% for the closely watched inflation gauge. It was the highest reading since February 1982.
“Inflation is not backing off,” said Michael Schumacher, Wells Fargo’s director of rates strategy. “People are really spooked. Look at the two-year Treasury. It’s a pretty easy bellwether… I wouldn’t say it’s unglued but it’s certainly pricing in a ton from the Fed.”
The benchmark Treasury yield has spiked a great amount in 2022, rising almost 50 basis points from 1.51% at the end of last year. In February alone, the 10-year rate has gained about 20 basis points from where it ended January around 1.78%.
Rapidly rising inflation has pushed traders to price in a faster pace of Fed interest rate hikes.
Chances for a 50 basis point increase in March rose to 48% Thursday morning after the consumer price index posted a 12-month gain of 7.5%, according to CME data. The market also was pricing in a 77% probability of six rate hikes in 2022.
“CPI inflation fire burns hotter and the Fed will need a bigger firehose,” Chris Rupkey, chief economist of FWDBONDS. “Inflation is raging out of control due to too strong consumer demand and the only thing the Federal Reserve can do is rein in consumer spending.”
Atlanta Fed President Raphael Bostic told CNBC on Wednesday that he foresees three or four interest rate hikes in 2022. However, he added that the central bank would have to see “how the economy responds, as we take our first steps through the first part of this year.”
Separately, initial jobless claims came in at 223,000 for the week ended Feb. 5. The number is lower than a Dow Jones estimate of 230,000.
Auctions are scheduled to be held for $50 billion of 4-week bills, $40 billion of 8-week bills and $23 billion of 30-year bonds.
— CNBC’s Patti Domm and Jeff Cox contributed reporting.