Bond yields experienced an upward trend on Tuesday as traders positioned themselves before the Federal Reserve’s rate decision later in the week.
- The yield on the 2-year Treasury TMUBMUSD02Y, 4.882% increased 5.2 basis points to 4.882%.
- The yield on the 10-year Treasury TMUBMUSD10Y, 3.901% saw a rise of 2.7 basis points to 3.897%.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.950% climbed 2 basis points to 3.948%.
Factors Driving Market
Benchmark Treasury yields are higher early Tuesday as traders await monetary policy decisions from the central banks of the U.S., eurozone, and Japan this week.
According to the CME FedWatch tool, there is a 98.9% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25% to 5.50% after its meeting concludes on Wednesday.
The possibility of a further 25 basis point hike to a range of 5.5% to 5.75%, following the September or November meetings, is priced at 18.7% and 32.4%, respectively.
Based on 30-day Fed Funds futures, the central bank is not expected to lower its Fed funds rate target back down to around 5% until May 2024.
Notable economic updates set for release on Tuesday:
- S&P Case-Shiller home price index for May at 9 a.m.
- July consumer confidence at 10 a.m. (Both times Eastern)
Mohamed El-Erian, adviser to Allianz and Gramercy, says: