10-Year US Treasury Yield Retreats After Hitting 4.979% as US August CPI Pushes Rate Hike Probability to Near 90%

TradingKey - Following the release of U.S. August CPI data, the 10-year U.S. Treasury yield briefly rose to near 4.97%, continuing to approach the 5% mark. Meanwhile, according to the CME FedWatch Tool, the probability of the Fed raising interest rates by 25 basis points in September rose to 88.8%; the probability of a cumulative rate hike of at least 25 basis points by October reached 93.7%, with a 39.3% chance of a cumulative 50-basis-point hike.

10-Year US Treasury Yield Retreats After Hitting 4.979%

On September 11, the 10-year U.S. Treasury yield briefly rose to 4.979%, reaching its highest level since October 2023, before giving back its gains following the CPI release. As of press time, the yield fell 4.3 basis points from the previous trading day to 4.918%.

The 30-year U.S. Treasury yield touched 5.384% intraday, reaching its highest level since 2007; the 2-year yield, which is more sensitive to policy rates, briefly rose to 4.596%, its highest level since July 2024.

[Source: TradingView]

The recent rise in U.S. Treasury yields was primarily driven by rising energy prices, inflationary pressures, Fed rate-hike expectations, and U.S. government financing needs. The U.S. Department of the Treasury's latest buyback of about $5.2 billion in long-term Treasuries fell short of the $6 billion limit and failed to significantly ease selling pressure in the bond market.

Core CPI Exceeds Expectations as Rate Hike Bets Heat Up

The U.S. Consumer Price Index (CPI) rose 3.4% year-over-year in August, unchanged from July, and gained 0.4% month-over-month, with both figures matching market expectations. Core CPI growth slowed from 2.5% to 2.4% year-over-year, but increased 0.3% month-over-month, topping the market forecast of 0.2%.

Gasoline prices increased 3.9% in August, accounting for more than a third of the monthly gain in overall CPI. The previously released August Producer Price Index (PPI) rose 0.4% month-over-month and 5.4% year-over-year, indicating that energy costs are still influencing the trajectory of U.S. inflation.

The Federal Reserve will hold its FOMC meeting on September 15-16, with the target range for the federal funds rate currently at 3.5% to 3.75%. As the probability of a September rate hike rose to 88.8%, market attention is shifting toward whether the Fed will raise rates again in October. CME data shows a 39.3% probability of a cumulative 50-basis-point rate hike through October, suggesting that consecutive hikes have not yet become the market's primary expectation.

How Will the 10-Year US Treasury Yield at 5% Impact US Stocks?

If the 10-year US Treasury yield persistently holds above 5%, corporate, mortgage, and consumer credit costs could rise further, placing greater pressure on high-valuation tech stocks and small- and mid-cap companies reliant on external financing.

The subsequent trajectory of US Treasuries will depend on the Federal Reserve's policy guidance, energy prices, and Treasury supply. If the Fed hints that a rate hike is still possible this year, yields could remain elevated; if its policy stance is less hawkish than market expectations, pressure on the bond market may temporarily ease.