U.S. Treasury Yields Surge to One-Month Highs as CPI Report Weakens Rate-Cut Expectations

Market Watcher
16 Jul

Treasury prices tumbled across the curve Tuesday, propelling most yields to their highest levels in a month as investors dissected June's CPI figures while bracing for Wednesday's PPI release.

By 3 p.m. New York time, yields had climbed between 4 and 7 basis points, led by intermediate maturities. This surge compressed the 5s30s spread by roughly 2 basis points.

In a significant development, the 30-year yield breached the psychologically crucial 5% barrier for the first time since early June. Should it hold above this threshold, it would mark the first close above 5% since May 23.

Market participants significantly dialed back Fed easing bets. Current pricing implies just 42 basis points of rate reductions this year, down sharply from Monday's 47 basis points. September meeting expectations similarly faded, with implied cuts shrinking to 13 basis points from 15 basis points.

The selloff accelerated dramatically during a concentrated 30-minute window beginning half an hour after the CPI release. Paradoxically, Treasuries initially rallied when core inflation printed below forecasts before reversing violently.

Bearish sentiment manifested powerfully in options markets, where traders piled into protective puts targeting a 30-year yield spike to 5.3%.

Key yields at 3:15 p.m. Eastern Time: - 2-year: 3.9545% - 5-year: 4.0502% - 10-year: 4.4893% - 30-year: 5.0187%

Yield curve dynamics showed the 2s10s spread at 53.273 basis points while the 5s30s gap measured 96.676 basis points.

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