U.S. short-term Treasury yields jumped on Friday following a larger-than-expected rise in prices last month sparked fears of a possible recession.
The 2-year yield jumped more than 13.8 basis points to over 2.955% at 9:25 a.m. ET on Friday. The yield on the benchmark 10-year U.S. Treasury bond reversed its decline, rising 4.6 basis points to 3.088%.
Short-term interest rates are volatile due to higher sensitivity to Fed rate hikes. The 5-year U.S. Treasury yield rose 10.3 basis points to 3.168%, inverting the 10-year and 30-year U.S. Treasury yields.
The U.S. consumer price index (CPI), a closely watched inflation gauge, rose 8.6 percent in May from a year earlier, the biggest gain since 1981, the U.S. Bureau of Labor Statistics reported on Friday. “Dow JonesEconomists polled had expected growth of 8.3%.
The so-called core CPI, which strips out highly volatile food and energy prices, rose 6%, also above the 5.9% estimate.
“The idea that inflation has peaked is gone,” said Greg McBride, chief financial analyst at Bankrate. “Any hope that the Fed will slow the pace of rate hikes following the June and July meetings now seems to be over. Nowhere in sight. Inflation continues to pick up and hopes of improvement are dashed once more.”
Inflation has soared across the board this year, leading the Fed to raise interest rates to ease those pricing pressures.
The Fed started raising interest rates in March, and in May implemented the largest rate hike in 22 years by 50 basis points, and the minutes of the Federal Open Market Committee (FOMC) meeting pointed to further rate hikes ahead.
Wells Fargo analyst Michael Schumacher said, “I think the market is focused on what the impact on the Fed is, not in June or July, but in September. That’s what people are focusing on most.”
