Bonds reel as hot inflation fuels jumbo Fed hike fears

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.

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.

South Korea's KOSPI rose 0.4%, while China's blue chips lost 0.2%.

Nasdaq futures bounced 0.5%, while S&P 500 futures rose 0.2%. European stock futures gained 0.6%.

Nvidia remained at the centre of a political storm as the company probes whether CEO Jensen Huang was targeted by a foreign intelligence operation. Its shares <> slid 5.5% overnight, taking losses from their recent peak to 30%.

Against that uneasy backdrop, Anthropic is pressing ahead with its listing at a $1.4 trillion valuation, setting up a key test of Wall Street's faith in the AI boom it helped ignite. The offer period runs until Tuesday with trading expected to start next Thursday.

DOLLAR GAINS, GOLD SLIDES

The repricing in interest rate expectations lifted the dollar, which gained 0.5% overnight against its major peers. It edged up another 0.1% on Wednesday to 102.29.

The risk-sensitive Australian dollar was the biggest casualty in the currency markets, having dived nearly 0.9% as traders wagered its central bank is done tightening after five rate rises this year with rate cuts expected next year.

Treasury yields climbed a little in Asia. The 2-year Treasury yield rose 2 bps to 4.7482% after surging 18 bps overnight, while the 10-year yield rose 1 bp to 4.9958% after a 12-bp rise overnight.

A stronger US dollar hit gold hard, with the precious metal down 2.6% overnight before edging up 0.2% on Wednesday to $4,030.56 an ounce.

"With yields higher across the curve, elevated carry costs, a firmer greenback, and possible liquidity challenges, it is likely that the yellow metal will trade back down to technical support near $3,900/oz," said analysts at TD Securities.

Oil prices rebounded on Wednesday after two days of losses on hopes that the Iran war would be resolved soon after the Democrats' victory at the US midterm elections. Brent crude futures rose 0.7% to $92.16 a barrel, having dropped as low as $89.16 overnight.

(Editing by Shri Navaratnam)