US Treasury yields broke a three-day losing streak on Wednesday, as Wall Street awaits the Federal Reserve's interest rate decision and subsequent press conference with chair Kevin Warsh.
- The yield on the benchmark U.S. 10-year note inched 1.2 basis points higher to 4.616%
- And the yield on the 2-year note, which most closely tracks changes in interest rate expectations, rose 2.4 basis points to 4.301%. Both were on pace to snap a three-day streak of declines.
- The longer-dated 30-year Treasury bond yield was broadly flat at 5.1%
Treasury yields have fallen from their July highs but are still set for a sharp monthly rise. Investors are increasingly betting on interest-rate hikes amid higher oil prices, which are raising concerns about inflation.
The yields on 10-year and 30-year notes are set for their biggest monthly jump since March, while the 2-year yield is headed for a fifth straight monthly rise.
Fed likely to keep interest rates unchanged
Markets largely expect the Fed to keep interest rates unchanged, though some investors remain cautious about that outcome. Money markets show traders still see a near 32% chance of a 25-basis-point rate hike, according to the CME FedWatch Tool.
"The labour market is not contributing to inflation, leading inflation indicators point to further cooling, and inflation expectations are broadly anchored. If the data continues to cool, peak hawkishness is behind us," BCA Research analysts said in a note, as reported by Reuters.
Both one- and five-year inflation swaps have declined steadily over the past few weeks, suggesting that investors do not expect inflation to rise significantly or remain high over the medium term.
Data earlier this month showed US job growth slowed sharply in June and payroll gains for the prior two months were revised lower, pointing to a cooling labour market, while consumer inflation slowed more than expected in June as crude oil prices retreated.
Traders are fully pricing in the chance of a September rate hike, along with a 71.2% chance of an additional hike by year-end, according to LSEG-compiled data.
Wednesday's interest-rate decision will be the second meeting under Kevin Warsh's chairmanship. Analysts expect the central bank to hold back on any forward guidance on rates after Warsh last month delivered a shortened policy statement, in contrast to former Chair Jerome Powell.
"This is the most uncertain that the market has been on whether the Fed will change rates going into a meeting since December 2018," Jim Reid, global head of macro research at Deutsche Bank, said in a note, as reported by Reuters.
(With inputs from Reuters and CNBC)
