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Treasury yields climbed sharply Tuesday after the U.S. consumer price index for October exceeded economists’ expectations. The hotter inflation readings increased attention on the Federal Reserve’s December meeting and the possibility of another sizable increase in interest rates.

The yield on the 10 year Treasury note rose more than 7 basis points to 4.938%. That note serves as a benchmark for mortgages, car loans and credit card rates, giving its latest move broad significance for borrowing costs.

The 30 year Treasury bond yield advanced more than 3 basis points to 5.29%. The source noted that this longer maturity is often affected by geopolitical developments, adding another consideration as investors assessed the latest move across government bonds.

The yield on the 2 year Treasury note recorded the largest increase among the maturities cited, climbing more than 15 basis points to 4.698%. The 2 year yield more closely tracks expectations surrounding Federal Reserve rate decisions over the shorter term.

Bond yields and prices move in opposite directions, meaning the rise in yields was accompanied by falling prices. One basis point is equal to 0.01%, or one hundredth of 1%, making even comparatively small movements notable across the Treasury market.

The October consumer price index increased 0.4% from the previous month. Economists surveyed by Dow Jones had expected a 0.3% increase, while the September reading showed a larger monthly gain of 0.6%.

Core CPI, which removes volatile food and energy prices, rose 0.3% in October. That also exceeded the 0.2% increase expected by economists and matched the 0.3% monthly rise reported for September.

The report arrived after Federal Reserve Governor Christopher Waller said he would support “more robust action” if inflation figures came in above expectations. His comments put the prospect of a larger December rate increase directly into the discussion as markets weighed the latest data.

“In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” he said. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

Markets had already largely priced in a 25 basis point increase at the December meeting, according to CME Group’s FedWatch. Waller’s remarks presented a more aggressive possibility if inflation readings continued to exceed expectations.

The October CPI report will be considered alongside wholesale inflation figures due Friday as the Federal Reserve evaluates future U.S. interest rate decisions. Those readings give policymakers another set of inflation data before the approaching December meeting.

The inflation figures also followed stronger than expected U.S. employment data released the previous week. The economy added 165,000 jobs in October, more than double Wall Street forecasts and another significant reading for markets tracking the Federal Reserve’s next step.

Oil prices moved lower Tuesday morning while Treasury yields were climbing. Brent crude fell below $90 a barrel for the first time since August, extending its decline as investors considered developments involving the war with Iran.

President Donald Trump said the war with Iran could end “fairly soon” while playing down the likelihood of additional strikes in the region. His comments came as Brent crude crossed below the $90 threshold during Tuesday morning trading.

The combination of hotter consumer inflation, stronger employment data and Waller’s warning placed renewed scrutiny on the December rate decision. Markets remained positioned largely for a 25 basis point increase, while Waller explicitly raised the possibility that a 50 basis point move should be considered.

Treasury yields reflected that tension, with the 2 year note posting the sharpest increase cited in the report. Investors now have the October CPI figures, Waller’s comments and the coming wholesale inflation data to consider as the Federal Reserve’s December meeting approaches.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.