Rates surged on Monday as investors bet the Federal Reserve would need to get more aggressive to lower inflation.
The 10-year Treasury yield jumped 24 basis points to 3.39%, marking its biggest move since March 2020, while the 2-year rate was last up about 30 basis points at 3.346%. Yields move opposite to prices, and a basis point is equal to 0.01%.
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Rates popped to session highs after a Wall Street Journal story published in the afternoon said the Fed might surprise markets with a larger-than-expected 0.75-percentage-point interest rate increase at their meeting this week.
A hotter-than-expected inflation reading on Friday stoked concerns of an aggressive rate hiking strategy by the Fed. The central bank is expected to announce at least a half-point rate hike on Wednesday and has already raised rates twice this year, including a 50-basis-point (0.5 percentage point) increase in May in an effort to stave off the recent inflation surge.
The jump in rates came after the 2-year and 10-year Treasury yield curve briefly inverted for the first time since early April earlier in the session. That measure is closely monitored by traders and often seen as an indicator of a recession.
The gap between the 2-year and 10-year yields briefly dipped to as low as minus 0.02 basis points on Monday. Short-term rates have moved more in the last few days because of their higher sensitivity to Federal Reserve rate hikes, flattening the widely watched yield curve.
Treasurys
Last week, the U.S. consumer price index, a closely watched inflation gauge, rose by 8.6% in May on a year-over-year basis, its fastest increase since 1981, the Bureau of Labor Statistics reported Friday. Economists polled by Dow Jones expected a gain of 8.3%. The so-called core CPI, which strips out volatile food and energy prices, rose 6%.
Meanwhile, the University of Michigan consumer sentiment reading fell to a record low, appearing to accelerate the selling in bonds at the end of last week.
— CNBC's Jesse Pound contributed to this report.