US yields edge higher as investors weigh Fed rate hike expectations
Summary
U.S. Treasury yields edged higher in New York as investors weighed lower oil prices against expectations of further Federal Reserve rate hikes. The two-year yield hit a fresh two-year high at 4.7879 percent, while the 10-year yield stayed below 5 percent after touching 5.041 percent last week. Traders priced in a roughly 53 percent chance of another Fed increase in October. The Treasury also planned a $69 billion two-year note auction later Tuesday.
Key Facts
- The Federal Reserve raised rates last week for the first time since 2023 to try to control inflation.
- The two-year U.S. Treasury yield reached a fresh two-year high at 4.7879 percent.
- The benchmark 10-year U.S. Treasury note yield was last up 0.7 basis points at 4.97 percent after reaching 5.041 percent last week, its highest since 2007.
- Traders saw about a 53 percent chance of another Fed rate increase at the October meeting, according to CME FedWatch.
- The Treasury planned to auction $69 billion of two-year securities later Tuesday, and five- and seven-year auctions were also expected this week.
U.S. Treasury Secretary Scott Bessent testifies during a House Committee on Financial Services hearing in the Rayburn House Office Building on Capitol Hill on Sept. 15 in Washington, DC. Getty Images via AFP-Yonhap
NEW YORK — U.S. Treasury yields were slightly higher on Tuesday as investors weighed lower oil prices against expectations for further interest rate hikes from the Federal Reserve.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, hit a fresh two-year high at 4.7879 percent.
The Fed last week raised rates for the first time since 2023 to try to control inflation. Traders see a roughly 53 percent chance of another increase when the U.S. central bank next meets in October, according to CME FedWatch.
Boston Fed President Susan Collins wrote on LinkedIn on Tuesday that she supported the U.S. central bank's decision last week to raise rates in the face of risks that future inflation will be above the 2 percent target.
Oil prices dipped but were off the day's lows. Oil prices have spiked since the start of the US-Israeli war on Iran, fueling concerns about inflation and higher interest rates.
Investors also digested comments from President Donald Trump, who told the United Nations that he believed the U.S. would make a deal with Iran right after U.S. midterm elections are held in November.
Benchmark 10-year U.S. yields were up slightly but held below the 5 percent level after reaching 5.041 percent last week, the highest since 2007.
"We had a lot of activity last week with the movement in yields and a lot of events to digest," said Jim Barnes, director of fixed income at Bryn Mawr Trust.
"So far this week, there's been more of a pause. Yields seem as if they've hit somewhat of a high, and the market is looking for a catalyst in order to reverse it," he said.
The yield on the benchmark U.S. 10-year Treasury note was last up 0.7 basis points at 4.97 percent. The yield on the 30-year bond was up 0.7 basis points at 5.303 percent.
The two-year U.S. Treasury yield was last up 0.69 basis points at 4.76 percent.
Later on Tuesday, the Treasury will auction $69 billion of two-year Treasury securities. Five- and seven-year auctions also are expected this week.
Last week, the Treasury Department saw soft demand for a $19 billion sale of 10-year Treasury Inflation-Protected Securities.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 21.4 basis points.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.340 percent after closing at 2.343 percent on September 21.
The 10-year TIPS breakeven rate was last at 2.327 percent, indicating the market sees inflation averaging about 2.3 percent a year for the next decade.
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