The bond market now has an even bigger fear than the AI fallout

Detailed summary

Traders had the odds of two Fed rate hikes through the end of January at nearly 70% on Thursday, up from 11% a week ago, according to the CME FedWatch Tool. Rate hikes can hurt…

The sharp selloff in tech stocks made Treasurys look more attractive in recent weeks, but another big driver of yields is emerging

Treasury yields were touching fresh November highs on concerns about Federal Reserve interest-rate hikes meant to slow inflation.

Investor fears were hitting the $32 trillion Treasury market again on Thursday.

Bond yields tumbled in October as artificial-intelligence stocks sold off sharply, leading to panic buying of relatively safe Treasurys. Bond prices and yields move in opposite directions.

But those same rates - including ones used to finance households, the U.S. government and the AI spending boom - were back climbing Thursday to their highest levels of November.

"The fact of the matter is the Fed could be quite a ways away from where they need to get," said Robert Tipp, head of global bonds at PGIM Credit, on Thursday. The market had gotten too comfortable with the idea that the Federal Reserve might be able to go light on interest-rate hikes, he noted. But hot inflation data this week and an upswing in the labor market in October now suggests otherwise.

"What had happened was the market got ahead of the Fed too far," Tipp told MarketWatch.

Traders had the odds of two Fed rate hikes through the end of January at nearly 70% on Thursday, up from 11% a week ago, according to the CME FedWatch Tool. Rate hikes can hurt the value of older bonds with lower coupon payments.

The whiplash had investors back to shunning Treasury notes and bonds. That was causing yields to rise to fresh November highs as prices fell. The 2-year Treasury yield BX:TMUBMUSD02Y was up another 13 basis points to 4.86% early Thursday, while its 10-year counterpart BX:TMUBMUSD10Y was 11 basis points higher to 5.10%, according to FactSet data. One basis point equals 0.01 percentage point.

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