Treasury yields near 24-yr high as investors await inflation data, Fed signals

Bond investors are bracing for fresh inflation data and comments from Federal Reserve Chairman Kevin Warsh that could reshape expectations for further interest-rate increases, Bloomberg News reported.

Treasury yields (US10Y) held near a 24-year high last week after surging following the Fed's unanimous rate hike in September. Signs of slowing job growth helped stabilize the bond market as traders weighed the central bank's next moves.

Investors largely expect the Fed to leave rates unchanged at its October meeting, followed by a quarter-point increase in December and two additional hikes by late 2027.

Wednesday's consumer price index report could challenge that outlook. Economists surveyed by Bloomberg expect monthly inflation to accelerate to 0.6% in September from 0.4% in August. Core inflation, which excludes food and energy, is forecast to slow to 0.2% from 0.3%.

Annual headline inflation is projected to reach 3.6%, while core inflation is expected to rise to 2.5%.

TD Securities strategist Molly Brooks warned that unexpectedly strong inflation could trigger another Treasury selloff by increasing pressure on the Fed to accelerate rate hikes. Softer inflation would likely reinforce expectations for a more cautious approach.

Warsh is scheduled to speak Thursday at the International Monetary Fund's annual meeting in Bangkok. Fed Governor Christopher Waller and Cleveland Fed President Beth Hammack also have appearances planned before the central bank's communications blackout begins Saturday.

Traders currently assign roughly a 20% probability to an October rate increase. The Fed's next two-day policy meeting concludes Oct. 28.

The Treasury market will be closed Monday for a federal holiday, while U.S. stock exchanges will remain open.