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Ten-Year Yield Jumps Above 2% Following Inflation Data

Treasuries showed a substantial move to the downside during trading on Thursday, driving the ten-year yield above 2 percent for the first time in well over two years.

Bond prices came under pressure early in the session and slid even more firmly into negative territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 10.2 basis points to 2.031 percent.

With the sharp increase on the day, the ten-year yield ended the session above 2 percent for the first time since late July of 2019.

The sell-off by treasuries came after the Labor Department released a report showing the annual rate of growth in consumer prices accelerated more than expected in the month of January, raising concerns about the outlook for interest rates.

The report showed consumer prices in January were up by 7.5 percent compared to the same month a year ago, reflecting the fastest annual growth since February of 1982. Economists had expected the annual rate of growth to reach 7.3 percent.

The faster year-over-year growth came as the Labor Department said its consumer price index climbed by 0.6 percent in January, matching the upwardly revised advance seen in December.

Economists had expected consumer prices to rise by 0.5 percent, matching the increase originally reported for the previous month.

The report showed core consumer prices, which exclude food and energy prices, also advanced by 0.6 percent in January, matching the increase seen in December. Economists had also expected core prices to rise by 0.5 percent.

The annual rate of growth in core prices accelerated to 6.0 percent in January from 5.5 percent in December, showing the biggest jump since August of 1982.

"These strong inflation data raise the prospect of the Fed starting its tightening cycle with a 50bps rate hike at its March policy meeting, followed by consecutive rate hikes at the subsequent meetings," said Kathy Bostjancic, Chief US Financial Economist at Oxford Economics.

She added, "If the Fed decides that 50bps is too strong to kick off the tightening cycle, 50bps could be in the cards for the following meetings."

Later in the day, St. Louis Federal Reserve President James Bullard told Bloomberg News he supports raising interest rates by 50 basis points next month as part of plan to raise rates by a full percentage point by the start of July.

CME Group's FedWatch tool currently indicates a 94.7 percent change the Fed will raise rates by 50 basis points at its next meeting in mid-March.

A preliminary reading on consumer sentiment in February may attract some attention on Friday, although the outlook for interest rates is likely to continue to weigh on investors' minds.

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