Hotter-Than-Expected Inflation Triggers Treasury Selloff as Veterans Day Pauses Trading

Hawkish Federal Reserve remarks and U.S. inflation above expectations fueled a sharp Treasury selloff on Tuesday. According to Sina Finance, trading paused Wednesday for the Veterans Day holiday, giving Treasury investors a temporary respite. Fed Governor Christopher Waller said at a London conference that he supported a 25-basis-point rate hike in December, but significantly higher-than-expected inflation could require stronger action. October’s Consumer Price Index rose 0.4% month over month, exceeding economists’ 0.3% forecast; core inflation, which excludes food and energy, also came in above expectations, pushing yields higher. BondBloxx Investment Management senior investment strategist JoAnne Bianco said markets had fully priced in at least a 25-basis-point December hike and were beginning to assign some probability to a 50-basis-point increase. BondBloxx’s base case remained a 25-basis-point hike in December, as the Fed could continue tightening at future meetings. Bianco said the path of monetary policy mattered more than the size of the next hike, and that economic data suggested rates might need to remain in restrictive territory longer than investors had expected. London Stock Exchange Group data showed that, after the CPI release, markets priced in 28 basis points of tightening in December, indicating an increased perceived likelihood of a 50-basis-point hike. Macquarie Group maintained its forecast for a 25-basis-point hike in December and another in March next year. Chief economist David Doyle said stronger-than-expected core inflation had tilted the risk around the timing of a hike further toward January next year.