US yields surge as traders await data, Fed cuts priced out on tariffs uncertainty

• Treasury yields climb post-CPI; 10-year up 5.5 bps, 2-year up 3 bps on firm inflation outlook.
• Fed's Jefferson says policy is well-positioned but notes tariffs could cloud inflation trajectory.
• Market trims 2025 Fed cut expectations to 49.5 bps, down from 76 bps in early May.

US Treasury yields are climbing across the entire yield curve as market participants digest Tuesday's US inflation data on the consumer side, with traders awaiting the release of the Producer Price Index (PPI) April figures and Retail Sales. At the time of writing, the yield on the US 10-year benchmark note has edged up five and a half basis points to 4.525%.

10-year yield rises to 4.525% while real yields surge to 2.21%, as Fed officials flag tariff risks and easing bets fade

The two-year US T-note treasury yield, which usually moves in tandem with interest rate expectations, edges up three bps at 4.049%

US Treasury yields remained within the week's highs as market mood shifted positively on news that the US and China had agreed on a 90-day pause in tariffs and reduced duties by over 115%. The White House decided to impose 30% tariffs on Chinese products and the latter 10% on US goods.

Fed Vice Chair Philip Jefferson stated that the current monetary policy stance is well-positioned to respond to economic developments, noting that inflation data is consistent with further progress toward the 2% goal, but the future path remains uncertain due to the impact of tariffs.

Jefferson added that tariffs could stoke inflation, but it is uncertain whether they would be temporal or persistent.

Trump's budget bill approved by US Congress

Republicans advanced elements of Trump's sweeping budget package on Wednesday, approving tax cuts that would add trillions of US Dollars to the US debt.

Investors are eyeing the release of inflation figures on the producer side, alongside Retail Sales and job market data.

US real yields are also climbing, capping Gold's advance

The US 10-year real yields, which are the difference of the US 10-year nominal yield minus inflation expectations for the same period, surge three basis points at 2.21%.

Traders priced out one interest rate cut by the Fed, as market participants expect only 49.5 basis points (bps) of easing, contrary to the 76-bps scheduled on May 7.

US 10-year Treasury yield chart / Fed interest rate probabilities