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

FAN Editor

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

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

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