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Treasury Yields Spike After Inflation Data Comes in Hotter Than Expected

Source: NYSE

Treasury yields climbed Wednesday after consumer price data showed hotter-than-expected inflation.

The rise in yields gained steam after a poor auction of 30-year bonds Wednesday afternoon. The poor demand sent Treasury prices lower and yields even higher.

The yield on the benchmark 10-year Treasury note jumped 11.6 basis points, rising to 1.565% by 4:10 p.m. ET. The yield on the 30-year Treasury bond rose 9.7 basis points to 1.918%. Yields move inversely to prices and 1 basis point is equal to 0.01%.

Wednesday's pop marked a reversal in a puzzling decline in rates. Despite inflation fears, the 10-year yield declined from as high as 1.70% in October to as low as 1.41% on Tuesday.

The consumer price index, which is a basket of products ranging from gasoline and health care to groceries and rents, rose 6.2% from a year ago, hitting its highest level since December 1990. That also came higher than the 5.9% Dow Jones estimate.

On a monthly basis, the CPI increased 0.9% against the 0.6% estimate.

The data comes as the Federal Reserve has begun talking about normalizing monetary policy, starting with tapering its asset purchases by the end of the month. Investor attention is now turning to when the Fed will look to raise interest rates.

"'Overall, it was a troubling read on inflation for the Fed's baseline assumption that consumer prices will moderate in 2022," Ian Lyngen, BMO's head of U.S. rates, said in a note. "Since the release, we've seen the 3 year sector lead the downtrade as investors bring forward rate hike expectations assuming the Fed will need to normalize policy rates sooner rather than later."

After the CPI release, traders moved up their expectations for when the first Fed rate hike would occur. The Fed funds futures market now sees the central bank's first full rate hike coming as soon as July 2022.

CNBC's Yun Li and Tanaya Macheel contributed to this market report.

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