10-year Treasury yield returns to about 5% after CPI while Brent slips below $90

The 10-year Treasury yield rose about 14 to 15 basis points to roughly 5.0% on Tuesday after the October inflation report, CNBC and CoinDesk reported, while Brent crude fell to $89.03 a barrel, its lowest since August 31.

The two inputs to inflation expectations pulled apart

The Bureau of Labor Statistics reported that consumer prices rose 0.4% in October on a seasonally adjusted basis, with core prices up 0.3%. Treasury yields jumped on the day after the data came in, CNBC reported: the 10-year note climbed 14 basis points to 5.00%, and CoinDesk had it up 15.2 basis points at 5.015% at 12:41 p.m. ET.

Energy went the other way. CNBC reported that Brent hit a low of $89.03 a barrel, a level not seen since August 31, and CoinDesk wrote at 9:42 a.m. ET that the price of oil was down about 15% from where it spent most of October. The BLS energy index had risen 5.2% in September, so the oil move and the core reading point in different directions: a cooling fuel price and a firm core.

Short-dated yields moved more than long ones

The 2-year yield, which CNBC said closely tracks short-term Fed rate expectations, rose 19 basis points to 4.738%. CoinDesk reported a 19-basis-point rise to 4.736% at 10:18 a.m. ET and 21 basis points to 4.757% at 12:41 p.m. ET. Because the 2-year rose by more than the 10-year, the gap between the two narrowed on the day, on these intraday figures (computed).

CNBC said the 10-year had last traded above 5% earlier in November. The 30-year yield rose more than 11 basis points to 5.37%, CNBC reported.

Traders priced a quarter-point rise, with some weight on a half

CNBC said markets had largely priced in a quarter-point rate rise at the Fed's December meeting, according to the CME Group's FedWatch tool. CoinDesk reported at 9:42 a.m. ET that FedWatch showed odds of 15% for a 50-basis-point move and 85% for 25 basis points.

Fed Governor Christopher Waller said in London that "I believe a 50 basis point hike in the policy rate should be considered at the December meeting," according to CNBC. The Fed's policy committee meets on December 8-9, according to the Fed's calendar, and the BLS is scheduled to publish November's CPI the next day, December 10.

We would watch whether oil's slide can offset a stubborn core

We think Tuesday shows that bond markets are now pricing the Fed's reaction to core inflation more than the swings in fuel. Oil's drop is a real relief for headline prices, but the 2-year yield's 19-basis-point jump suggests traders read the 0.3% core pace as the number that decides policy.

The opportunity is that a lower oil price, if it holds, would take pressure off the headline index in coming months; the threat is that a 10-year yield near 5% tightens financing conditions for companies and households at the same time. We expect yields to stay sensitive to the next inflation data, and we would change our reading if core CPI slows to 0.2% or Brent rebounds above its October levels. Single-day moves are weak evidence, and the intraday levels above will not match closing levels.

The view in this final section is FinanceInTime's editorial opinion, for information only. It is not investment, tax, legal or other advice, and it does not take your circumstances into account. Forecasts are uncertain and past results do not guarantee future ones.