US Treasury yields hit 16-year high ahead of Fed meeting

US yields hit a 16-year high ahead of the conclusion of the Federal Reserve’s policy meeting on Wednesday, at which the central bank is expected to hold rates steady, but may indicate its willingness to keep monetary policy tighter for longer, Report informs via the Financial Times.

The benchmark 10-year Treasury yield reached a session high of 4.371 percent, its highest level since early November 2007. The five-year Treasury yield also reached a 16-year high of 4.524 percent, while the yield on the two-year note hit a two-month high of 5.114 percent.

Treasury yields, which move inversely to price, track interest rate and inflation expectations. Tuesday’s jump indicated that traders expected Fed chair Jay Powell to signal the central bank’s willingness to keep interest rates higher for longer.

Though Fed officials have signalled they are concerned about the risks of over-tightening monetary policy, mixed data from the US, including a recent jump in headline inflation, has complicated the central bank’s job. In the Fed’s “dot plot” — its economic and policy projections for the coming year — to be released tomorrow, officials may indicate they expect to keep interest rates at high levels for longer.

“Markets are setting up for a hawkish Fed tomorrow,” said Benjamin Jeffery, a US rates strategist at BMO Capital Markets.

Markets are pricing in a 99 percent chance that interest rates will remain unchanged on Wednesday, but traders have roughly 50-50 odds on the chances of rates then being lifted by the end of the year.