US 10-year Treasury yields hit two-month high following January’s unexpected inflation data.

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• US 10-year Treasury yields hit two-month high following January’s unexpected inflation data.
• Markets now foresee rate stability, with potential Fed easing likely delayed until June.
• 2-year note yield increase to 4.647% reflects revised expectations for the Fed’s rate path.
• Increase in 10-year TIPS yield to 2.281% suggests a market view of around 2.3% average inflation in the medium term.

US Treasury bond yields climbed on Tuesday following a red-hot inflation report that pushed out market expectations for a Federal Reserve’s rate cut. Therefore, the US 10-year benchmark note rate hit a two-month high and rose thirteen basis points towards 4.31%.

January’s US inflation data revealed that headline inflation increased above estimates but slowed compared to the previous month’s data. The Consumer Price Index (CPI) was 3.1% YoY, below the previous month’s 3.4% YoY. Underlying inflation, which excludes volatile times, increased to 3.9%, unchanged compared to December’s and above forecasts.

Most traders were expecting inflation to slow down sharply, with CPI foresaw to edge below the 3% threshold, while excluding volatile items, the so-called core, was estimated to dip to 3.7%.

Following the data, speculations that the Fed will keep rates at around the 5.25%-5.50% range grew, with the most likely scenario that Fed Chair Jerome Powell and Co. will keep rates unchanged in March and May. The swaps market shows odds for a 25-basis point Fed cut above 50% for the June meeting. The US 2-year note yield, the most sensitive to interest rates, jumped 16 bps at 4.647%, reflecting investors’ stance on interest rates.

In the meantime, Gold prices plummeted below the $2000 mark as demand for US Treasury Inflation-Protected Securities (TIPS), a proxy for real yields, attracted flows, and a headwind for XAU/USD prices. The US 10-year TIPS rose by 2.281%, indicating that market participants see inflation averaging 2.3% for the upcoming medium term.

The yield of the US 10-year benchmark note is expected to test the 100-day moving average (DMA) at 4.329%, which, once cleared, could pave the way for further upside. The next resistance emerges at4.514% the November 27 cycle high, followed by the November 13 at 4.694%. Conversely, if yields drop, the first support would be the 4.20% threshold, followed by the 200-DMA at 4.141%. A breach of that level could pave the way to challenge the 50-DMA at 4.037%.

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