U.S. Treasuries Sell Off as Inflation and Fed Hawkishness Shake Rate Bets

U.S. Treasuries suffered one of their sharpest selloffs since April 2025 as hotter-than-expected inflation and hawkish Federal Reserve comments shook interest-rate bets. According to Sina Finance, the two-year Treasury yield, which is more sensitive to Fed policy shifts than longer-term yields, jumped as much as 21 basis points to 4.77% on Tuesday, putting it on course for its biggest one-day rise since U.S. President Donald Trump’s reciprocal tariffs triggered global market turmoil. The move reversed a Treasury rally that had begun early last month, when falling technology stocks and oil prices had supported bonds. On Tuesday, market attention returned to inflation, which the Fed has struggled to contain since the pandemic. Principal Asset Management Chief Global Strategist Seema Shah called the inflation report a warning, saying its message to the Fed was that the fight against inflation was not over. Selling began after Fed Governor Christopher Waller said he would support a 50-basis-point hike if inflation continued to accelerate. After October’s consumer price index came in above economists’ expectations, traders began pricing in the possibility of a large rate increase in December. Dallas Fed President Lorie K. Logan reinforced those expectations, saying at least two more 25-basis-point hikes were needed and that the Fed might have to accelerate its pace. After tightening policy in September, the Fed held rates steady last month as it continued assessing the economy. Fed Chair Kevin Warsh has repeatedly stressed the need to bring inflation, which has remained above the Fed’s 2% target since the pandemic ended, under control. He has dropped his predecessor’s practice of providing forward guidance, leaving traders more reliant on economic data and comments from Fed officials to gauge the rate outlook. The U.S. Bureau of Labor Statistics reported that core CPI, excluding volatile food and energy costs, rose 0.3% in October from the previous month, while overall CPI increased 0.4%. Both figures exceeded economists’ expectations. The nonfarm payrolls report released last Friday showed steady hiring and unexpectedly faster wage growth. If Tuesday’s yield gains hold, they would rank among the largest in recent years. The sudden repricing after hawkish Fed comments could trigger renewed stock-market volatility while risk appetite remains fragile following last week’s technology-stock selloff. Traders are pricing in a cumulative 28 basis points of rate increases at the Fed’s December meeting, implying a possibility of a 50-basis-point hike by year-end. Futures markets reflect the possibility of three 25-basis-point increases in total by the end of June next year. Alex Pelle, a senior U.S. economist at Mizuho, said the Fed might need to make up for holding rates steady in October. He said the debate at the December meeting would likely be between a 25- and 50-basis-point hike, rather than between no increase and a 25-basis-point hike.