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U.S. Treasury Yields At Three-Month High After Hot Inflation Report

U.S. Treasury yields have spiked to their highest level in three months after the latest inflation report showed American consumer prices rose more than expected in January.

The yield on the benchmark 10-year Treasury bond rose 15 basis points and climbed above 4.30% after January’s Consumer Price Index (CPI) showed that U.S. inflation rose at an annualized rate of 3.1%.

While the figure of 3.1% was down from 3.4% in December, it was higher than the 2.9% that economists had forecast for January.

That sent bond yields soaring and stocks plummeting in the U.S., with the Dow Jones Industrial Average falling more than 500 points for its worse one-day performance in nearly a year.

In premarket trading today (Feb. 14), bond yields are easing slightly but remain near three-month highs. The 10-year Treasury yield is currently at 4.2946%, while the yield on the 2-year Treasury is at 4.6054%.

Yields and prices move in opposite directions and one basis point equals 0.01%.

The hotter than expected inflation report has raised concerns about the timing of interest rate cuts in the U.S.

Traders and investors are adjusting their expectations for when interest rate cuts will begin and how many rate cuts there will be this year.

U.S. Federal Reserve Chair Jerome Powell has warned in recent interviews that the central bank wants to see more progress in bringing inflation down to its 2% annualized target before making any decisions on interest rates.

Traders are pricing in an 8.5% chance of a March rate cut, down from 80% a few weeks ago. Expectations for a rate cut in May of this year have fallen to 60% from about 90% a week ago.

Delayed interest rate cuts and the prospect that rates could stay higher for longer has renewed concerns that there will be an economic recession later this year, pushing bond yields higher.