Traders assign about a 94% probability, the highest level this year, to a Fed boost at its final meeting for the year on December 13-14, futures contracts indicate. Trump's spending plans are driving speculation the Fed will pick up its pace of rate increases as inflation expectations climb, Bloomberg wrote.
"It's hard not to think this is incredibly reflationary for the global economy," said Mark Nash, the head of global bonds in London at Old Mutual Global Investors, which oversees about $37 billion. "We believe there should be more hikes priced in and bond yields should rise," he said Tuesday in an interview on Bloomberg Television.
Treasury 10-year note yields rose four basis points, or 0.04 percentage point, at 2.26% as of 08:08 in London, according to Bloomberg Bond Trader data. The price of the 2% security due in November 2026 dropped 11/32, or $3.44 per $1,000 face amount, to 97 22/32. The yield climbed to 2.3% Monday, the highest this year. The next target is 2.5%, Nash said.
The odds of a Fed move by December have risen from 68% at the start of November as inflation expectations surged.
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A gauge of expectations for U.S. consumer prices this week climbed to the highest level since April 2015. The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities climbed to 1.97 percentage points on Monday, the highest this year.
Fed's Measure
An inflation gauge monitored by the Fed, the price index for personal consumption expenditures, rose to an annual rate of 1.2% in September. The central bank's target is 2%.
Prices for goods imported into the U.S. fell in October from a year before, government data showed Tuesday. The producer price index increased 1.2% from 12 months earlier, which would be the fastest pace in almost two years, based on a Bloomberg survey of economists before the report Wednesday.
"The outlook for U.S. growth is probably a bit firmer for both 2017 and beyond," said Su-Lin Ong, an economic and fixed-income strategist at Royal Bank of Canada in Sydney. "Markets have then stepped up to pretty much fully pricing a December move, although we do need to see greater clarity from Trump and his new administration."
