On Thursday, Sept. 10, the Producer Price Index (PPI) report for August was released, showing a year-over-year inflation rate of 5.4%.
This is different from the Consumer Price Index (CPI) figure that is used as the official inflation rate, which is due on the morning of Sept. 11. But the PPI figure is still high, and it has spooked markets into thinking we are probably getting a rate hike from the Federal Reserve on Sept. 16.
The Chicago Mercantile Exchange’s FedWatch tool, which uses futures market data to forecast interest rate changes, currently gives more than 70% odds that the Fed will raise rates by 0.25 percentage points next week in an effort to tackle stubborn inflation.
It’s a pretty dramatic reversal from where we were earlier this year, when we were expecting the Fed to cut rates. And that reversal has suddenly made the most boring part of your portfolio — bonds — worth paying attention to.
Bond yields have spiked ahead of time. Could they go higher?
After the PPI report on Thursday, the 30-year Treasury yield lurched above 5.35%, hitting its highest level in more than two decades. The 10-year yield also hit a multi-decade high above 4.95%.
Long-term bond yields reflect investors’ long-term expectations about inflation and interest rates, and right now, investors are adjusting to the idea that high inflation and high interest rates are here to stay for the time being.
Shorter-term Treasury yields reflect shorter-term expectations, like what the Fed is going to do with benchmark interest rates at its next meeting. After the PPI report, the 3-month, 6-month and 1-year Treasury bills also saw their yields rise, in anticipation of a 25-basis-point hike on the 16th.
You might think that yields will rise further if the Fed does hike benchmark rates — but according to Kody Sherlund, a New York-based certified financial planner, we might actually see the opposite happen with long-term bonds. That’s because the hike is likely priced in now, and a non-hike is now the wildcard scenario.
“In the world of bonds, a hike reinforces the Fed's credibility on inflation, and could actually help stabilize or ease long-end yields, since it reduces the inflation risk premium investors are demanding. A no-hike scenario, however, could be a little rockier for equity and bond markets if the Fed is perceived as being okay with above-target inflation,” Sherlund said in an email interview.
We saw this dynamic in action back in late July, when the Fed narrowly voted to hold rates steady. Markets didn’t like that — they felt that the Fed was falling behind on tackling inflation, and long-term yields surged.
We might be in for the same “up-is-down” reaction on the 16th — holding rates steady might make yields go up, while raising rates might make yields go down.
So is now a good time to buy bonds?
A quick Bonds 101 recap: Bonds pay a fixed dollar amount of principal and interest if you hold them to maturity, but their market price fluctuates over time.
When we say that a bond’s yield has risen, we really mean that its market price has fallen, because paying a lower price means earning a higher profit on the payment value of the bond in percentage terms.
That also means that if you buy a bond while yields are high (i.e. prices are low) and hold it to maturity, you lock in that high yield — even if yields fall shortly after.
With that in mind, it might be tempting to take advantage of high yields by investing in bonds right now — especially given that they might actually decline after the expected rate hike. What are the pros and cons of that?
Marguerita Cheng, a certified financial planner based in Maryland, says that in addition to paying high yields right now, T-bills do have some advantages over other short-term savings vehicles like certificates of deposit (CDs).
“T-bills provide income that’s exempt from state and local taxes. CDs are taxable at the federal and state level,” Cheng says.
She also notes that T-bills are more liquid than CDs — they don’t have early withdrawal penalties. And although they’re not FDIC-insured like CDs are, they’re backed by the full faith and credit of the U.S. government.
Below is a table of the top-rated brokers reviewed by NerdWallet that offer Treasury bonds, bills and notes.
Another way to invest in T-bills is through a Treasury account — a new type of financial product that looks and feels like an online savings account, but works by automatically investing your money in T-bills, which provides state and local tax benefits and locks in the market yield at the time of each deposit.
That said, Treasuries aren’t risk-free. Sure, they don’t have early withdrawal penalties, but if you sell them before maturity, you’ll earn the market price, which might be higher or lower than what you paid for them.
Sherlund emphasized that there is a chance that bond prices could fall lower and yields could rise higher from here — which would mean that if you did want to cash out early, you’d be selling at a loss. It would also mean that you’d be missing out on those higher yields.
“Locking in 4-5% yield may feel good relative to the last 15 years, but if long-run inflation expectations become anchored, you could be exposed to some duration risk,” Sherlund said.
A one-off hike, or the start of a series?
According to Cheng, one big, unanswered question is what happens in the next Fed meeting. Will we get a one-off interest-rate hike, or is this just the start of a series of hikes?
Cheng noted that stubborn inflation is a global problem, and that central banks in other large economies have already started raising rates. The Bank of Japan raised its benchmark interest rate in June in a near-unanimous vote. It’s expected to raise rates again on Sept. 18.
If we’re headed into a long-term rate hike series, that could have dramatic effects on financial markets. The last big U.S. rate-hike series, when the Fed raised rates 11 times between the spring of 2022 and the fall of 2023, coincided with a bear market in stocks.
We may get some hints after the Sept. 16 Fed meeting via the Fed’s Summary of Economic Projections (SEP), in which Fed staff members will be individually asked to predict where they think benchmark interest rates will be at the end of 2026, 2027 and 2028. The last SEP, released after the June 17 meeting, projected that rates would fall slightly in the years ahead. If the September SEP shows something different, it may signal that we’re in for more rate hikes in the near future.
What about savings accounts?
High-yield savings accounts may not pay as much as long-term bonds, and their interest is fully taxable at the federal and state levels (unlike Treasurys, which are tax-exempt at the state level).
But they do offer more flexibility: Unlike CDs, savings accounts have no withdrawal penalties, and unlike bonds, you don't need to worry about the market price of anything if you want to pull your money out early.
Plus, if inflation stays high and the Fed keeps raising rates in future meetings, high-yield savings accounts have the advantage of rate flexibility. Their rates typically change in line with Fed policy, whereas with bonds, you're stuck with the market yield at the time of purchase.
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- 1.Bureau of Labor Statistics. Producer Price Index News Release summary.
- 2.CME Group. FedWatch. Accessed Sep 10, 2026.
- 3.Bank of Japan. Change in the Guideline for Money Market Operations. Accessed Sep 10, 2026.
- 4.Reuters. BOJ to raise rates to 1.25% this month, reach 1.75% faster than expected. Accessed Sep 10, 2026.
