US Treasury Yields Fluctuate After Sticky Core Inflation

US Treasury yields experienced a volatile session on Friday after core consumer prices rose more than expected in August. Markets now assign a 90% probability to a Federal Reserve rate hike next week and fully price in two rate increases before the end of the year.

According to the Bureau of Labor Statistics, the consumer price index excluding food and energy climbed 0.3% in August from the prior month. In annual terms, core inflation rose 2.4%. The two-year Treasury yield, which is highly sensitive to monetary policy, rose by up to seven basis points to 4.66%, reaching its highest level since 2024 before erasing the move. The 10-year Treasury yield dropped five basis points to 4.91% after earlier touching 4.98%, gaining 14 basis points over the week.

The Bloomberg US Treasury index fell 0.6% on Thursday, marking its worst session since 20 March. Bond markets have faced broad pressure as Brent crude climbed above $100 per barrel following Middle East hostilities. German 10-year yields also reached their highest point since 2009 after the European Central Bank raised interest rates for the second time since late February.

Treasury Secretary Scott Bessent saw longer-term debt recover after an expanded buyback program this week had little effect. High yields attracted buyers on Thursday during a $22 billion 30-year bond auction, which registered historically strong demand.