Hotter-Than-Expected U.S. Inflation Fuels Fed Rate Bets, Sends Yields Higher
U.S. inflation ran hotter than expected in October, sending Treasury prices lower and lifting bets that the Federal Reserve will raise rates next month. Asian equity-index futures pointed to losses, while two-year Treasury yields climbed to 4.73%, their highest level in 19 months.
Hotter-than-expected U.S. inflation sent Treasury prices lower and strengthened bets on Federal Reserve rate increases, leaving a falling bond futures offer no relief to investors on Wednesday, November 11.
Markets moved quickly. Futures tied to equity indexes in South Korea, Japan, Hong Kong and Australia pointed to losses, while benchmark government bonds in Australia and New Zealand fell in early trading.
Inflation lifts rate expectations
The consumer price index rose 0.4% in October as the cost of essentials increased across the board, according to Bureau of Labor Statistics data. Prices excluding food and energy rose 0.3% from the previous month, exceeding estimates for a third consecutive month.
The inflation figures prompted a selloff in U.S. Treasury bonds, with shorter-dated debt taking the heaviest hit. The two-year Treasury yield rose 17 basis points to 4.73%, its largest increase in 19 months.
Money markets priced in a quarter-point rate increase at the Federal Reserve’s meeting next month, with some chance of a larger move. Futures also reflected about three quarter-point increases by June.
Dallas Fed President Lorie Logan said faster rate increases may be needed this winter to bring inflation under control. Federal Reserve Governor Christopher Waller had earlier said a half-point increase in December may be warranted.
“The Fed could push for a more-aggressive tightening cycle with CPI continuing to print strong,” said Lindsay Rosner at Goldman Sachs Asset Management. “A December hike is our firm base case despite wider AI jitters, and stubborn inflation means we cannot rule out further hikes in 2027.”
Stocks and commodities under pressure
On Wall Street, the S&P 500 ended a run of two consecutive gains, and the Nasdaq 100 fell 0.6%. The dollar rose while gold dropped.
The prospect of faster rate increases threatens to stall a recent stock-market recovery. For bonds, the latest losses reversed a rally that began early last month as technology shares weakened over concerns about the sustainability of the artificial-intelligence boom.
“The hot CPI print is a ‘headwind’ for risk assets with ‘higher front-end yields and a stronger dollar weighing on equity valuations,’” said Jeff Schulze, head investment strategist at Franklin Templeton Institute.
Investors were also monitoring corporate developments. Anthropic PBC is targeting a fully diluted market value of US$1.4 trillion through its initial public offering. CoreWeave Inc. reported quarterly earnings above analysts’ estimates and raised its annual forecast, easing concerns about a slowdown at the debt-laden company.
SoftBank Group Corp. shares were also in focus after the company recorded a 1.12 trillion yen (US$7.1 billion) loss in its fiscal second quarter. The loss followed write-downs of non-refundable advance payments for its U.S. data-center projects.
Brent crude fell for a second consecutive day to settle near US$92 a barrel amid expectations of further de-escalation in the Iran war. The oil benchmark remained up almost 50% this year, despite prices retreating in November from a six-month high.
