Treasury yields rose Tuesday as traders await the Federal Reserve’s decision on rate hikes, expected to be announced Wednesday.
The policy-sensitive 2-year Treasury gained about 3 basis points, reaching 3.977% – a level it hadn’t reached since late 2007. The 10-year Treasury yield rose 5 basis points to 3.539% at 6:15 a.m. ET, trading near levels not seen since 2011.
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Revenues and prices have an inverse relationship and one basis point is equal to 0.01%.
The Federal Reserve meeting in September, where the central bank will make decisions on the amount of interest rate hikes to curb ongoing inflation, begins Tuesday. Analysts and traders are anticipating a 75 basis point gain, which markets are already starting to price in.
Others think the Fed will go further and hike 100 basis points, which would be the largest rate hike in 40 years.
“If the Fed moves its dots higher, markets’ expectations for further hikes should rise, in addition to pricing stronger rate hikes of similar magnitude. Current market expectations are that the Fed’s target range will be 2.25-2.50% move to 4.0-4.25%, if not by the end of the year,” ING analysts said.
“As long as we’re on that upward leg, long-term yields could also continue to be dragged higher in the front-end rate slipstream, although the curve is likely to reverse further in the process.”
Investors will gain insight into the housing market ahead of the Federal Reserve’s interest rate decision, with construction permit and home start data for August expected to be released.