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Bond Report: 2-year Treasury yields briefly tops 4% as Fed decision awaits

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The yield on the 2-year Treasury briefly surpassed 4% on Tuesday as the Federal Reserve readies another big interest-rate hike.

What’s happening

The yield on the 2-year Treasury
TMUBMUSD02Y,
3.970%

rose 6 basis points to 3.98%. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
TMUBMUSD10Y,
3.538%
,
which on Monday reached a decade high, rose 5 basis points to 3.54%.

The yield on the 30-year Treasury
TMUBMUSD30Y,
3.556%

rose 4 basis points to 3.56%.

What’s driving markets

The next Federal Open Market Committee meeting looms over the market, as investors grapple not just with whether the central bank will make a 75 basis point rate hike or lift rates by 100 points, but also how high the Fed will signal rates will go in the future.

The FOMC meeting is due to start on Tuesday and end on Wednesday.

Economists at ABN Amro expect the Fed to signal rates will reach 4.5%. “The projections are also likely to suggest that monetary policy will remain restrictive through 2023 and into 2024, as the Fed seeks to assure markets and the public that it is determined to bring inflation durably back to its 2% target,” said Bill Diviney, senior economist. The Dutch bank still believes the peak rate will be 4% but isn’t expecting a communications shift from the central bank soon.

There’s also a $12 billion auction of 20-year Treasury securities at 1 p.m. ET,

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