Yields on shorter-term U.S. government bonds rose after data showed inflation reached a 30-year high in October, reflecting investors’ expectations that the Federal Reserve will have to raise interest rates more quickly to combat surging consumer prices.

The yield on the two-year Treasury note, which often climbs when investors anticipate tighter central bank policies, rose back toward its highs for the year near 0.5%, according to Tradeweb. That compares with 0.409% at Tuesday’s close.

Yields,...

Yields on shorter-term U.S. government bonds rose after data showed inflation reached a 30-year high in October, reflecting investors’ expectations that the Federal Reserve will have to raise interest rates more quickly to combat surging consumer prices.

The yield on the two-year Treasury note, which often climbs when investors anticipate tighter central bank policies, rose back toward its highs for the year near 0.5%, according to Tradeweb. That compares with 0.409% at Tuesday’s close.

Yields, which rise when bond prices fall, gained after data showed the core price index climbed 4.6% in October from a year earlier—higher than September’s 4% rise and the largest increase since 1991.

The move retraced much of a recent decline in short-term yields, which retreated around the world last week after the Bank of England surprised investors by holding rates steady. Several investors said Wednesday’s climb reflected renewed bets that central banks will begin removing pandemic-era economic support faster than officials have predicted.

The sharper increase in short-term yields relative to longer-term yields—known on Wall Street as a flattening yield curve—marked a return of a trend that took hold in October, when investors had bet that tighter monetary policy might slow the economy.

In recent trading, the gap between the two-year and 10-year Treasury yields was just below 1 percentage point, down from around 1.3 percentage points in early October. The gap between five- and 30-year yields fell to 0.66 percentage points from around 1.11 percentage points over the same period.

“Any time shorter-term bonds are rising faster than longer-term bonds, it’s saying we see quicker Fed hikes but maybe not necessarily more over the longer term,” said Tom Graff, head of fixed income and portfolio manager at Brown Advisory.

Market-based expectations for inflation and rate increases by the Federal Reserve both jumped after the report.

Annual expected CPI inflation over the next five years—known as the five-year break-even rate and derived from the yield differential between nominal and inflation-protected Treasurys—rose to 3.094%, according to Tradeweb, from 2.968% Tuesday. The 10-year break-even rate climbed to 2.704% from 2.628%.

Fed funds futures, derivatives used by traders to bet on central bank policy, showed a 65% chance that the Fed will raise its benchmark interest rate above its current level near zero by its June 2022 meeting, according to CME Group data, up from 51% Tuesday. The chances of two rate increases by the end of next year climbed to 79% from 63%, while the chances of three rate increases surged to 48% from 29% Tuesday.

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—Sam Goldfarb contributed to this article.