10-year Treasury yield falls after lighter than expected inflation reading

Treasury yields slid on Tuesday after data showed inflation rose less than expected for November, fueling hope that the Federal Reserve will slow the pace of rate hikes.

The yield on the benchmark 10-year Treasury dropped nearly 10 basis points to 3.508%, after earlier falling below the 3.5% level. The 2-year Treasury yield was last down by nearly 17 basis points to 4.229%.

Yields and prices move in opposite directions and one basis point is equivalent to 0.01%.


The consumer price index, which measures a wide basket of goods and services, rose just 0.1% from the previous month, and increased 7.1% from a year ago, the Labor Department reported Tuesday. Economists surveyed by Dow Jones had been expecting a 0.3% monthly increase and a 7.3% 12-month rate.

The lighter-than-expected reading came just a day before the central bank wraps up the last policy-setting meeting of the year. Many believe that the data cemented a 50 basis point rate hike this week.

"Inflation is cooling for goods and services this month and the price increases that wreaked havoc on financial markets will likely cool even further in 2023," Chris Rupkey, chief economist at FWDBonds. "For the first time we can say the Fed is winning its war on inflation."

At its last four meetings, the Fed hiked rates by 75 basis points each. That pace has prompted recession fears among many investors. Mixed economic data which indicated that rate hikes may have to continue for longer have added to the concerns in recent weeks.

"The kneejerk rally that has followed resonates with the peak inflation narrative gaining steam," Ian Lyngen, BMO's head of U.S. rates, said in a note.