(Bloomberg) — Treasury yields climbed and the dollar hit a two-year high ahead of key inflation data that could further sap confidence in the pace of Federal Reserve interest-rate cuts. Stocks in Asia are set to open lower after a breakneck US rally ran out of steam.
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Two-year US yields — more closely tied to Fed decisions than longer-maturity debt — reached the highest since July as the dollar extended its post-election rally, pushing the Japanese yen nearer the closely watched level of 155. Equities fell more than 1% in Sydney, while futures signal drops in Tokyo and Hong Kong after the S&P 500 slipped following its biggest five-day advance in a year. Bitcoin approached $90,000 for the first time.
Treasury 10-year yields advanced 12 basis points to 4.43% on Tuesday, and Australia’s equivalent jumped nine basis points in early trading Wednesday. Traders are now pricing in about two US rate cuts through June, against almost four seen at the start of last week.
US data later today is expected to show the overall consumer price index probably increased 0.2% for a fourth month, while the year-over-year measure is projected to have accelerated for the first time since March.
“Inflation is not tamed,” Scott Kleinman, co-president at Apollo Global Management Inc., said in a Bloomberg Television interview Tuesday. “We’re going to have to live with a higher rate environment for a lot longer.”
Chinese stocks slumped on Tuesday following reports that US President-elect Donald Trump was poised to pick two men with track records of harshly criticizing China for key posts in his administration. That’s added to global concerns about the potential economic impact from his campaign pledges of tariffs on US imports, tax cuts and migrant deportations.
Traders are betting on further losses in Treasuries in anticipation that Trump’s proposed policies will rekindle inflation and keep US interest rates high. Open interest, an indication of futures traders’ positioning in the bond market, rose for a fourth straight session in the two-year note contract, data released Tuesday show.
Fed Minneapolis President Neel Kashkari on Tuesday said he’ll be watching the inflation data closely to determine whether another interest-rate cut is appropriate at the US central bank’s December meeting.
“The bond market is set up for a stronger CPI number,” said David Rogal, fixed-income portfolio manager at BlackRock Inc. “Even with certainty on the election result, there’s still a fair amount of uncertainty on policy and how that impacts markets.”
