6-month T-bill rate finishes above 5% for first time since 2007 after January CPI data

What happened

• The yield on the 2-year Treasury
  TMUBMUSD02Y,
  4.621%
  rose 8.6 basis points to 4.620% from 4.534% on Monday. Tuesday’s level is the highest since Nov. 9, based on 3 p.m. yields, according to Dow Jones Market Data. The yield is up seven of the past eight trading sessions.

• The yield on the 10-year Treasury
  TMUBMUSD10Y,
  3.753%
  advanced 4.4 basis points to 3.760% from 3.716% Monday afternoon. Tuesday’s level is the highest for the 10-year rate since Jan. 3. 

• The yield on the 30-year Treasury
  TMUBMUSD30Y,
  3.785%
  rose 1.1 basis points to 3.801% from 3.790% late Monday.

What drove markets

Data released on Tuesday showed the annual headline CPI inflation rate slowed to 6.4% in January from 6.5% in December — the lowest level in 15 months, but still above the 6.2% median estimate of economists. The increase in the core reading — which strips out particularly volatile items like food and energy — tapered to 5.6% over the past 12 months from 5.7%, though came in above expectations.

Meanwhile, the cost of living rose 0.5% in January on a monthly basis, the biggest increase in three months, in a sign that inflation is remaining stickier than expected.

Read: Inflation could ‘easily’ take more than a year to decline enough for Fed to cut rates, trader says

The report drove short-term yields higher as traders factored in a higher-for-longer outlook on interest rates. The 6-month T-bill rate rose to 5.022% as of 3 p.m. Eastern time on Tuesday, while the 1-year T-bill rate climbed to 4.992%, according to Tradeweb. The last time the 6-month bill closed around Tuesday’s level was July 2007.

Richmond Federal Reserve President Tom Barkin, speaking in a Bloomberg television interview, said he expects inflation to have “a lot more persistence” than everyone wants.

Traders expectations for the Fed’s next rate hike on March 22 solidified around another 25 basis points, which would lift the fed funds target range to between 4.75% and 5%, according to the CME FedWatch tool. Fed funds futures traders also see a decent chance that the target could go above 5.2% later this year, according to 30-day Fed Funds futures.

What analysts are saying

“The Fed’s reaction to this report is probably not all too dissimilar to Kobe Bryant’s quote after Game 2 of the 2009 NBA Finals: ‘What’s there to be happy about? Job’s not finished,’ ” said Jason Pride, chief investment officer of private wealth at Glenmede, which manages $40.5 billion in assets. “The Fed still has much progress to make in taming inflation before it can conclude this ongoing tightening cycle. Next up, is likely another quarter-point rate hike at the March FOMC.”