Treasury yields climb as investors watch for hottest inflation reading in nearly 40 years

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Yields on U.S. government debt were rising again Friday morning, adding to the weakness in Treasuries this week, as fixed-income investors positioned ahead of the November consumer price index data due during the session which may reveal the highest annual inflation rate in 40 years.

A hot inflation report could solidify the view that the Federal Reserve will act more quickly to tighten monetary conditions when it meets next week and raise interest rates next year to cool surging pricing pressures.

What are yields doing?
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.471%
    1.514%, up compared with 1.486% on Thursday at 3 p.m. Eastern Time.

  • The 30-year Treasury bond rate
    TMUBMUSD30Y,
    1.846%
    was at 1.884%, up from versus 1.865% a day ago.

  • The 2-year note yield
    TMUBMUSD02Y,
    0.684%
    was at 0.717%, adding to its highest rate since March of 2020, compared with 0.684% on Thursday afternoon.

  • For the week, the 10-year Treasury has risen 17.2 basis points, the 30-year added 20.9 basis points, and the 2-year Treasury note picked up 12.8 basis points, based on 3 p.m. levels on Dec. 3.

What’s driving the market?

All eyes are on the U.S. consumer inflation data due Friday morning, with prices expected to have risen by 6.7% year-on-year in November, according to economists surveyed by the Wall Street Journal, when the data is published by the Labor Department at 8:30 a.m. ET.

The inflation rate is expected to top 5% for the sixth straight month to the highest pace since 1982.

Some analysts are wagering that the reading might come in a little cooler because of a sharp drop in oil prices
CL.1,
+1.31%
last month, but core inflation, which excludes volatile food and energy prices is estimated to see a rise of 0.5% for the month, compared with a 0.6% reading for October.

Read: Traders see next U.S. CPI reading close to 7% as volatile markets try to shake off omicron and Federal Reserve’s hawkish pivot

Fed Chairman Jerome Powell signaled last week that the central bank is likely to move more quickly on reducing its monthly bond purchases, amid fears that the omicron variant of the coronavirus that causes COVID-19 could intensify supply-chain bottlenecks that have contributed to higher prices. Markets expect the tapering of Treasurys and mortgage-backed securities purchases could be completed by March, with multiple interest rate hikes expected in 2022.

A punchy inflation report also could hamper President Joe Biden’s goal of passing a multitrillion-dollar social-spending package through Congress before the end of the year, as some U.S. senators fear fiscal stimulus is already overdone, Barron’s, MarketWatch’s sister publication, writes.  

What strategists are saying

“With the fed funds futures market already pricing in almost 3 rate hikes in 2022 (the now more hawkish Jim Bullard who votes next year said he wants two) and everyone expecting a doubling of the pace of taper, I’m not sure even an upside surprise to today’s CPI is going to move the Treasury market much as I can’t imagine the Fed going faster than what the Treasury market now anticipates,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a Friday note. “I doubt they’ll even get to what is currently priced in. “

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