December rate hike priced in? Getting there, experts say

Cashin: Today an ideal day
Santelli Exchange: Fed supervision

Short-term bond yields spiked Wednesday morning ahead of commentary from three voting members of the Federal Reserve, with the two-year note yield reaching 0.816 percent, the highest level since April 2011.

With the central bank considering raising interest rates as soon as December, traders might be trying to adjust asset prices for higher yields, experts said. Remarks from Fed Chair Janet Yellen, Fed Vice Chair Stanley Fischer and New York Fed President William Dudley could provide insights, according to Art Cashin, director of floor operations for UBS at the New York Stock Exchange.

"You've got three people speaking today, with a high likelihood that at least one of them will reinforce [the possibility of a December hike]," Cashin said. "If you're a short-term trader, what you want to do is protect yourself from that, so you pay up for some of the yields because you assume that they will move further."

Federal Reserve Chair Janet Yellen testifies before the House Finance Committee in the Rayburn House Office Building November 4, 2015 in Washington, DC.
Janet Yellen: December rate hike a 'live possibility'

Indeed, Yellen called a December rate hike a "live possibility" in her testimony before the House Financial Services Committee. The Treasury Department later auctioned $26 billion in two-year notes at a high yield of 0.824 percent.

"The yield on the two year is up to the highest point this year," Cashin told CNBC. "They have returned to that point because they clearly assume that at least Fischer will talk about a hike in December."

Yellen also said she expects data between now and December to guide her decision, leaving the market to interpret upcoming economic reports. The president of Bianco Research, Jim Bianco, for instance, has a formula for monitoring one key indicator: federal funds futures.

Fund futures rose 2 points during Yellen's congressional testimony, with the probability of a December move at 58 percent. That's a jump of 4 percentage points on a daily basis and a huge surge from a month ago, when traders anticipated just a 2 percent chance of a hike amid market turmoil and indications of deflation in the U.S. and global economies.

"The fed funds future is the market's assessment of whether or not the Fed's going to raise," Bianco said. "It has to get above 60 and stay above 60 ... because then, you not only have the expectation of the rate hike, but it starts to get priced in."

— CNBC's Jeff Cox, Jenny Cosgrave and Gina Francolla contributed to this report.