Bonds reel as hot inflation fuels jumbo Fed hike fears

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By Stella Qiu SYDNEY, Nov 11 (Reuters) - Global bonds tumbled and the dollar stayed firm after a hot US inflation print and hawkish central bank rhetoric raised the risk of an outsized half-point rate hike from the Federal Reserve next month, though stocks remained resilient.

SYDNEY, Nov 11 (Reuters) - Global bonds tumbled and the dollar stayed firm after a hot US inflation print and hawkish central bank rhetoric raised the risk of an outsized half-point rate hike from the Federal Reserve next month, though stocks remained resilient.

Data showed overnight core US inflation ran at a monthly rate of 0.3% in October, higher than the forecast 0.2%. Before the data landed, Fed Governor Christopher Waller said a core reading of 0.3% would prompt him to consider a 50-basis-point hike at the next meeting in December.

Dallas Fed President Lorie Logan said two more rate rises were needed, possibly rapidly, and Chicago Fed President Austan Goolsbee warned of a "real inflation issue" on hand, while Philadelphia Fed President Anna Paulson called for gradual rate hikes.

Fed funds futures now imply a quarter-point move is essentially locked in, with a 10% probability of a 50 bp rise. A total of three quarter-point moves are fully priced in by the middle of next year.

Two-year Treasury yields surged 18 basis points overnight. Bonds in Asia were sold off, with Japan's 10-year government bond yield up 7 bps to 2.755%, and Australia's up 6 bp to 5.05%.

"Despite Waller’s comment, we continue to expect a second 25bp rate hike in December because we suspect that most FOMC voters would hesitate to jump to a 50bp hike," said David Mericle, chief US economist at Goldman.

"But we are adding a third 25bp hike to our forecast in March 2027, which would take the funds rate to a peak of 4.25-4.5%."

In Asia, MSCI's broadest index of Asia-Pacific shares rose 0.2%, defying the weakness on Wall Street, and Japan's Nikkei climbed 0.6%.

Shares of SoftBank Group slid 3.3% after it took a net loss of $7 billion in the second quarter, hit hard by hefty buildout costs for US data centres.

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