Treasury yields fell on Thursday as investors sold off technology shares and moved toward the safety of bonds in response to concerning inflation data. The benchmark 10-year Treasury yield dropped nearly 13 basis points to 5.066%, alongside the 30-year Treasury bond yield which decreased to 5.40%. The 2-year Treasury note yield also fell more than 6 basis points to 4.74%.
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According to the Bureau of Labor Statistics, wholesale prices surged at an annual rate of 6.3% in September, marking the largest increase since 2022. This exceeded economists’ expectations of a 5.5% rise, as noted by a Dow Jones poll. Additionally, the consumer price index released on Wednesday indicated a 0.6% monthly increase and a 3.7% annual rise in the cost of goods and services, again surpassing forecasts of 0.6% and 3.6% respectively.
The heightened inflation fears contributed to a broader trend of investors seeking safer assets, particularly as uncertainties surrounding rising interest rates were tied to potential impacts on technology spending. Despite the inflation data, expectations regarding interest rate changes remained steady, with fed funds futures indicating at least one more quarter-point increase by year-end, as per the CME FedWatch tool. The probability of rates exceeding the current fed funds range of 3.75% to 4.00% has significantly increased over the past month.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, remarked that with back-to-back inflation reports exceeding expectations, the Federal Reserve will likely be compelled to raise rates again this year. While a rate increase is not anticipated later this month due to its proximity to the mid-term elections, a quarter-point hike in December is expected. Last month, the U.S. central bank raised benchmark lending rates for the first time in 2023, increasing the fed funds rate from 3.50% to 3.75%.
Correction: A previous version of this article misstated how traders are pricing the Fed's next interest rate decision.