2-year Treasury yield rockets above 3.79%, highest since 2007

U.S. Treasury yields shot higher on Tuesday as investors bet that a hot inflation reading will keep the Federal Reserve aggressive in tightening monetary policy.

The yield on the 2-year Treasury, the part of the curve most sensitive to Fed policy, soared more than 17 basis points to 3.748%. The yield climbed to 3.794% at one point, its highest level since November 2007. Yields move inversely to prices, and a basis point is equal to 0.01%.

Meanwhile, the yield on the benchmark 10-year Treasury note surged 6 basis points, trading at 3.42%. The yield on the 30-year Treasury bond was up for most of the day before slipping 2 basis points to 3.492%.


The consumer price index increased 0.1% for the month and 8.3% over the past year. Economists had been expecting headline inflation to fall 0.1% month over month, according to Dow Jones estimates. The year-over-year estimate was 8%.

Energy prices fell 5% for the month, led by a 10.6% slide in the gasoline index. However, those declines were offset by increases elsewhere.

"We saw this tug of war between goods moderating and services remaining strong. This is not a tug of war. They both moved up," said Nomura economist Rob Dent. "Right now I think the Fed is going to be looking at this with a lot of concern. This is no good news across this report ," he said.

Following the hot inflation reading, markets are pricing in a 100% chance that the Federal Reserve will hike interest rates by at least 75 basis points for a third time next week, according to CME FedWatch tool.

Major market rally ahead due to inflation 'collapse,' predicts Credit Suisse
Major market rally ahead due to inflation 'collapse,' predicts Credit Suisse

— CNBC's Patti Domm and Natasha Turak contributed reporting.