The 10 year Treasury yield climbed to 5.00 percent after the hot October inflation report, and borrowing just got more expensive for households and businesses. Inflation came in hot, and the October consumer price index rose 0.4 percent for the month against 0.3 percent expected, while core CPI rose 0.3 percent against 0.2 percent expected, and the bond market reacted at once.
Why it matters
The 10 year yield is the price of money for the whole economy. A 5 percent 10 year pushes mortgage, auto and credit card rates up, and it raises the cost of every loan that is priced off it. The 2 year yield rose 20 basis points to 4.77 percent on the same day, and the dollar posted its biggest one day gain since September, as the market priced in a December hike that now looks certain. Food prices rose 0.5 percent in October and shelter costs picked up again, so the inflation behind the yield move is the kind households feel every week.
The Fed is the reason. Governor Christopher Waller said he would support a quarter point rate hike in December, possibly a half point, and Goldman Sachs has added a third hike in March 2027. The market has now fully priced in a 25 basis point hike in December with a small chance for a 50 basis point hike, and the debate is how far the Fed will go.
What happens next
The politics are inseparable from the rates. Voters turned against the Republicans in the midterms in part because of persistent inflation, and the report sets the stage for a December hike that will make borrowing more expensive in the run up to Christmas. The food index rose 0.5 percent in October, and shelter costs picked up again.
What happens next will be decided at the Fed meeting on December 8 and 9. If the Fed hikes by 25 basis points, the 10 year may steady near 5 percent. If it hikes by 50, yields go higher still, and the borrowing costs that are already squeezing households will squeeze harder. For now, 5 percent is the number that matters. The 2 year yield rose 20 basis points to 4.77 percent, and the dollar posted its biggest one day gain since September, as the market priced in the December hike.
