The yield on the US 10-year Treasury note edged up to about 4.46% on Wednesday, nearing its highest level since June of last year, after stronger-than-expected inflation data dampened hopes for Federal Reserve interest rate cuts.
US consumer prices rose 3.8% year-on-year in April, above the 3.7% consensus forecast and marking the fastest pace since May 2023. The increase was driven in part by higher energy costs linked to the conflict in the Middle East, which added to broader price pressures.
In response, markets have largely removed the likelihood of any Fed rate cuts this year, while the implied probability of a 25-basis-point rate hike in December has risen to about 35%. Investors are now turning their attention to the latest producer price data for additional clues on how the war involving Iran is feeding through to the US economy.
At the same time, oil prices remained elevated as diplomatic efforts to defuse the US-Iran confrontation showed little progress, keeping inflation risks firmly in focus.
