US Treasuries: How did the CPI shock drive yields sharply higher? – Deutsche Bank

US Treasuries sold off sharply as higher-than-expected US core and headline CPI readings coincided with hawkish remarks from Fed officials, according to Deutsche Bank strategists. With 10-year yields nearing 5%, two-year yields recorded their largest one-day rise since 2025. Markets are now pricing in a longer and more aggressive Fed rate-hiking cycle extending into 2027.

What is driving hawkish repricing across the curve?

"That US CPI print drove the biggest moves of the day, with the monthly core CPI print for October above consensus at +0.30% (vs. +0.2% expected)."

"Moreover, it was the third consecutive month with core CPI at +0.3%, and if you take those three months together, the annualised pace for core CPI is running at +3.75%."

"That’s the fastest pace on that measure since April 2024, so it made it increasingly difficult to dismiss this as a blip."

"Meanwhile, the headline CPI numbers were faster still, with monthly headline CPI at +0.35% (vs. +0.3% expected), with the 3-month annualised pace at +5.72%."

"For markets, the clearest impact could be seen in US Treasuries, with yields surging across the curve."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)