Stronger U.S. inflation data and surging crude oil prices forced the bond market to reprice Fed rate expectations sharply higher, crushing gold and equities in the process.
The two-year Treasury yield jumped eight basis points to 5.11 percent. Fed funds futures now price an 82 percent probability of a 25-basis-point hike at the December 12-13 meeting, up from 65 percent the previous session.
Crude's climb, driven by supply concerns and global demand, feeds directly into headline inflation. Energy costs anchor the inflation basket and squeeze consumer purchasing power. Longer duration bonds have absorbed the repricing: investors demanded higher yields across shorter-maturity instruments, compressing spreads from the two-year outward.
The Fed's hawkish rhetoric remains intact. Officials have committed to the two percent inflation target, and persistent core readings—especially with crude adding to headline pressure—leave little room for a policy pause. Policymakers now face a longer restrictive cycle.
Gold surrendered to the rate environment. Higher yields increase the opportunity cost of holding non-yielding assets. The dollar index climbed 0.3 percent to 106.1, adding headwind to the precious metal. The S&P 500 fell 0.3 percent and the Nasdaq dropped 1.4 percent.
The Producer Price Index report on November 14 will test whether this tightening impulse holds. Any persistence in core readings could cement another December move.
