10-Year Treasury Yield Pulls Back From 3-Year High After Core CPI Comes in Lighter Than Expected

Source: NYSE

The 10-year U.S. Treasury yield retreated from a three-year high on Tuesday as investors digested the latest inflation report.

The yield on the benchmark 10-year Treasury note dropped 6 basis points to 2.721% after the rate topped 2.82%, its highest point since December 2018 earlier in the session. The yield on the 30-year Treasury bond moved 1 basis point lower to 2.811%.

The consumer price index, which measures a wide-ranging basket of goods and services, jumped 8.5% from a year ago on an unadjusted basis, slightly above a Dow Jones estimate for 8.4%.

Investors seemed to take solace from the core CPI, excluding food and energy, which increased 6.5% year over year, in line with the expectation. Month to month, core CPI rose 0.3%, lighter than the 0.5% expectation.

These inflation readings are key in determining how aggressive the Federal Reserve will be in tightening monetary policy.

"The ugly trend of inflation is why the Federal Reserve is poised to hike interest rates by a half percentage point in May and begin letting their bond portfolio run off," said Greg McBridechief financial analyst at Bankrate. "The Fed will be pressing firmly on the brake pedal – not just pumping the brakes – in an effort to slow demand and bring the inflation rate back down."

Rising prices and a more hawkish Fed have given rise to investor fears that a recession may be on the horizon, as seen in the inversion of bond yields. Investors have been selling out of shorter-dated Treasurys in favor of longer-dated debt, indicating their concerns about the near-term strength of the economy, though rates had reverted on Tuesday.

Nigel Bolton, co-chief investment officer at BlackRock Fundamental Equities, told CNBC's "Squawk Box Europe" on Tuesday that increased market volatility reflected concerns about central banks making "policy mistakes and that rolls over into global recession that's 12 to 18 months out."

However, Bolton said he didn't think a recession was "definitely on the cards." 

Samantha Subin and Yun Li contributed to this market report.

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