US Treasury Yields Surge as Inflation Data Triggers Selloff

US Treasury yields surged to their biggest single-day jump since April 2025 on Tuesday, upending bond investors after hotter-than-expected inflation data and hawkish Federal Reserve commentary forced markets to reprice rate hike expectations.

Core Inflation Rises More than Economists Anticipated

The consumer price index report for October showed core inflation rising 0.3% from the previous month, outpacing the 0.2% increase economists had anticipated, according to data covered by CNN.

Mortgage News Daily said that month-over-month core CPI actually printed at .296 against a 0.22 forecast, while year-over-year core CPI reached 2.8 compared to a 2.7 forecast and 2.6 previously, alongside a supercore reading of .399%. The bond market hit was immediate, as shorter-term yields bore the heaviest losses related to Fed Funds Rate expectations.

The two-year Treasury yield surged 17 basis points on Tuesday to close at 4.73%, marking its largest single-day jump since April 2025, when President Donald Trump unveiled tariffs that rattled financial markets. Meanwhile, the benchmark 10-year yield climbed 10 basis points to 4.98%, briefly pushing back above 5% during trading.

Prior to the CPI release, comments from key central bankers set the stage for the selloff. Federal Reserve Governor Christopher Waller, speaking in London, stated he would consider backing a jumbo 50-basis-point rate increase at the central bank’s December policy meeting if core inflation continued to print at 0.3% or higher, according to Yahoo Finance and CNBC.

“Then, a stronger policy move may be needed,” Waller said.

“Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take,” Waller added.

Hawkish Shift Alters Market Positioning

Dallas Fed President Lori Logan reinforced the hawkish turn during remarks in Houston on Tuesday, arguing that the central bank needs to deliver at least two additional quarter-point rate increases.

“The exact pace of increases could depend on the near-term economic and financial environment,” Logan said.

“It may be possible to move more rapidly this winter than the Fed has moved so far this fall,” Logan said.

JPMorgan’s Treasury client survey showed that in the week up to Nov. 9, investors cut both short positions (by 4 percentage points) and long positions (by 5 percentage points), switching into neutrals (rising 9 percentage points). Across Dec26, Mar27 and Jun27 SOFR options, the 96.50 strike remains among the most populated, aided by recent large position of SFRM7 96.50/97.25 2×3 call spreads, which were bought vs selling Mar27 96.25/97.00 2×3 call spreads.

In the options market, some participants rushed to unwind bullish hedges set in late October, with one large seller liquidating a five-year position at a loss of roughly $3 million, as detailed by Yahoo Finance.

December Rate Path Pricing

Traders using the CME FedWatch tool now price in a 91% probability of a quarter-point rate hike and a 9% chance of a half-point move in December, compared to a 23% chance the Fed would hold rates steady last week, as reported by CNN.

“October’s economic data profile and a hawkish shift in Fed-speak have prompted the market to reassess whether a faster pace of Fed policy tightening may be warranted,” Vail Hartman, US rates strategist at BMO Capital Markets, wrote in a note cited by CNN.

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