Market Extra: 2-year Treasury yield jumps toward 5% as traders reflect on producer-price data

Julie Chabanas/Agence France-Presse/Getty ImagesTrading in the roughly $25 trillion Treasury market took on two different, simultaneous lines of thinking on Wednesday, with September’s hot producer price index pushing the policy-sensitive 2-year rate back above 5% and the rest of the market largely looking past the report. The 2-year yield BX:TMUBMUSD02Y, which captures expectations of where Federal Reserve policy is likely to go over that time, touched almost 5.03% in New York morning trading after the PPI data, up as much as 4.3 basis points from Tuesday’s closing level. The yield’s rise, even while 7- through 30-year yields all fell on flight-to-safety trades, suggests not everyone is buying into the idea that policy makers are likely to win the war against inflation and are done with hiking interest rates.“The Fed will have to look at this inflation data and really start to reflect on whether they are containing inflation at all,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG in New York. “The jury is still out on whether the Fed can actually be done.”The next major inflation report, the consumer price index for September, is set to be released on Thursday.

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