30-year Treasury yield expected to peak near 5.5% after hot inflation

Hotter-than-expected October inflation pushed long-term U.S. borrowing costs higher on Tuesday, and traders now see the 30-year Treasury yield topping out at about 5.5% this year, little changed from the 5.51% they expected before the report.

The Treasury Department's official 30-year par yield rose to 5.35% on Nov. 10 from 5.26% a day earlier, after the Bureau of Labor Statistics published the October consumer price report. Investors read the figures as pointing to tighter Federal Reserve policy.

A climb to 5.70% before the end of December is still seen as unlikely, though no longer the long shot it was. Bets on that level roughly doubled by Wednesday morning after sitting flat through the weekend and Tuesday, and are now a bit above where they stood late last week. The yield's rise is a plausible reason for the shift, though the bets moved about a day after the data and the exact link in timing is not established. The yield remains 35 basis points short of the mark.

Traders' expectations for the year's high span a range from under 5.4% to 5.76%, and the single most likely result is that the yield stays under 5.4% from here. Higher levels drew little new interest: reaching 5.80%, 5.90% or 6.00% each remains a long shot, barely changed.

The 30-year yield has been closer before. It reached 5.66% on Oct. 5, then slid to 5.26% by Monday. The Fed raised rates in September and held them steady in late October. Before the inflation report, Fed Governor Christopher Waller said a half-point December hike should be considered if core inflation came in at 0.3% or higher. The report showed 0.3%.

The bond market is closed Wednesday for Veterans Day, so no new official yield will be published until trading resumes. The measure that counts is the Treasury's daily par yield, not an individual bond's intraday or auction yield.

Several events could move long-term yields in the weeks ahead. The Treasury is scheduled to auction $25 billion in 30-year bonds on Thursday. The Fed meets Dec. 8-9, and November inflation figures are due Dec. 10. A single published reading of 5.70% or higher on any day through Dec. 31 would be enough to settle the question.