(Bloomberg) -- Inflation-adjusted Treasury yields jumped to a two-month high after a hotter-than-expected consumer price reading prompted traders to pare back their expectations of interest rate cuts.  

Yields on 10-year Treasury inflation-protected securities, or TIPS, rose to 2% for the first time since Dec. 12, a day before the Federal Reserve at its policy meeting signaled that interest rates have peaked.

The move came after a government report showed that the US consumer price index increased 3.1% from a year earlier, compared with a median forecast of 2.9% among economists surveyed by Bloomberg. A key subset of services prices advanced by the most in nearly two years.

So-called 10-year real yields have increased more than 30 basis points this month, as data showing the economy picked up pace dampened expectations that Fed rate cuts are imminent. Interest-rate swaps showed that the odds of a cut in May dropped to about 36%, from about 64% before the inflation data release, with fewer than 100 basis points of cuts anticipated this year.

Here’s a series of indicators on how the market views US inflation:

Inflation Snapshot

Inflation News Bites

  • The jump in January’s consumer price index probably will be less pronounced in the Fed’s preferred inflation gauge and potentially less alarming to central bank officials as they weigh when to cut interest rates.
  • US Treasury Secretary Janet Yellen touted progress in bringing down inflation even as the latest monthly data pointed to stubborn price gains, including across several key household expenses.
  • Swiss inflation unexpectedly eased in January, a development that could open the door to earlier rate cuts by the Swiss National Bank.
  • Soaring prices in recent years have pushed inflation-adjusted German wages back to levels last seen in 2016 — boosting arguments for significant pay increases, according to a study whose results could worry the European Central Bank.

Key Upcoming US Releases

  • Feb. 15: Import price index
  • Feb. 16: Producer price index; University of Michigan survey of inflation expectations
  • Feb. 29: Personal income and spending report, including PCE, for January
  • March 1: ISM price paid
  • March 12: Consumer price index
  • March 14: Producer price index
  • March 15: Export price index

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