By Senad Karaahmetovic
The 2-year US Treasury yield moved higher Monday after Friday data showed that the consumer price index (CPI) surged by 8.6% in May, its fastest jump in more than 40 years.
The surge was driven by a sharp increase in short-term rates due to their high sensitivity to Fed’s rate hikes.
The 2-year rate soared over 10 basis points to 3.249%, marking its highest mark since December 2007, while the 10-year Treasury yield also climbed to 3.248%. Both the 2-year rate and the 10-year Treasury yield are close to inverting again, which is generally viewed as a sign of recession.
As a result, the S&P 500 futures are down 2.7% while Nasdaq futures are down over 3.5%.
The U.S. central bank is set to hold its long-awaited Federal Open Market Committee (FOMC), with many expecting that the Fed will declare another rate hike of at least half a point on Wednesday. The Fed has hiked rates twice in 2022, including a 0.5 hike last month to curb the record-high inflation jump.
Some strategists are now calling for a 75bps rate hike on Wednesday.
The CPI, which serves as a gauge of inflation, surged 8.6% in May year-over-year, marking its fastest surge since 1981, compared to economists’ expectations of 8.3%. The core CPI, which does not take into account food and energy prices, climbed 6%.