Last night's bond market and inflation drama caused risk assets to tumble, sparking heated debates among traders as everyone speculates on what the U.S. will do next. Right now, the bond market isn’t buying into the Treasury’s plans, making borrowing more expensive for the U.S., and the housing market is already frozen. Next, the U.S. will have to choose between sacrificing the economy, the stock market, or letting oil prices drop first. If inflation stays stubborn, the Fed might hike rates again. The U.S. 10-year Treasury yield surged to around 4.97%, just a hair away from 5%. This marks the first time since November 2023 that it officially broke above the 4.9% level. If Treasury yields keep climbing, borrowing costs for the U.S. government, businesses, and everyday Americans will rise. Mortgage rates will follow suit, leading many buyers to back out of deals, essentially freezing housing transactions. Some analysts say the cancellation rate has hit its highest level in 2023. That’s why traders worldwide are now laser-focused on Friday’s CPI (Consumer Price Index) and next week’s Fed moves. If the CPI data comes in hot, expectations for further Fed rate hikes will intensify. The bond market is essentially at odds with the Treasury right now, fueling speculation that either the economy, the stock market, or oil prices will have to take a hit. This is also why traders are debating fiercely—there’s some disagreement on which one will drop first.