The selloff in U.S. Treasurys accelerated Thursday as Federal Reserve officials spoke about their path to lower inflation through higher interest rates and home sales fell to a 16-year low.
The U.S. 2-year yield closed at 4.862%, its largest two-day gain since March 2023. The U.S. 10-year yield closed at 5.102%, the largest two-day gain since April 2025.
Cleveland Fed President Beth Hammack said she prefers smaller, steadier movements in monetary policy because they make it easier for businesses and households to plan.
Other regional Fed presidents also spoke about the path to higher policy.
"My bias is that further tightening will be needed because you just see this consistent pressure on inflation that isn't simply in the sectors that are most directly affected by tariffs or oil," San Francisco Fed President Mary Daly said Thursday.
In addition, U.S. existing home sales declined in October to their lowest level since 2010, as a selloff in the bond market caused mortgage rates to take off beyond 7%.
President Trump also dashed hopes for an Iran peace deal after stating "we don't need a deal with Iran," in a post on his Truth Social platform. The comments caused oil prices to rise, supporting the prospect of further interest-rate rises by the Federal Reserve.
Fed rate hike expectations for December remained in favor of a 25-basis-point hike, priced with an 85% probability, while the probability of a 50-basis-point hike was 15%, according to LSEG.
Eurozone and U.K. government bond yields turned higher after trading down earlier in the day. The German 10-year government bond closed at 3.358%, up 0.026 percentage point, it highest close since Oct. 29. The U.K. 10-year Gilt closed at 5.302%, up 0.073 percentage point.
Gross domestic product in the U.K. grew 0.7% in the three months through September compared with the previous quarter, the U.K.'s statistics agency said. This marked the strongest quarterly expansion in economic activity since the first quarter of 2024, although it was in line with the consensus forecast in a Wall Street Journal survey of economists.
The data support market expectations of a 25-basis-point interest-rate hike by the Bank of England in December, currently priced with a 74% probability, according to LSEG.
"For the Bank of England, this data will come as positive news, highlighting the resilience of the U.K. economy in the face of headwinds such as the energy price shock due to the wars in Ukraine and the Middle East," said Sam Jochim, economist at EFG Asset Management.
"This suggests that the U.K. economy can withstand a further tightening of monetary policy," he said in a note.
Still, with the Fed's Dec. 9 interest-rate decision some weeks ahead, the landscape might change.
"The December FOMC meeting feels so far away that enough can happen between now and then to deter the Fed from hiking at all, even though the baseline view should be a single 25 basis points hike," said Thierry Wizman, global FX and rates strategist at Macquarie Group, in a note.
A number of things could prevent the Fed from hiking in December, or certainly deter a 50-basis-point hike, he said. These include the risk of a U.S. government shutdown, possible further declines in the price of oil on hopes for a U.S.-Iran peace deal, and a potential further selloff in stocks if the AI story worsens, he said.
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