Treasury yields edged lower ahead of the conclusion of the Fed's September meeting and the policy announcement at 2 p.m. ET. Quick refresher: a basis point is one hundredth of a percentage point, and when bond prices rise, yields usually slip.
In early readings, the 10-year note sat at 4.967%, the 30-year bond at 5.348%, and the 2-year note at 4.627%. A separate real-time board showed slightly different marks: the 10-year at 4.967% down 0.029, the 30-year at 5.347% down 0.016, and the 2-year at 4.623% down 0.04. Shorter tenors were softer too, including the 1-month at 3.84%, the 3-month at 4.048%, the 6-month at 4.20%, and the 1-year at 4.339%, each lower on the day.
Markets leaned heavily toward a quarter-point increase, with futures implying a 92.9% chance compared with 33% a month earlier. That shift tracks hotter inflation readings and a bond market that has been repricing to reflect them.
On Friday, the U.S. annual inflation rate was reported at 3.4% for August. The personal consumption expenditures price index, the Fed's preferred forecasting guide, rose 3.7% year over year in July. Oil holding above $100 a barrel has added to inflation worries. That mix has pressured the long end of the curve in recent weeks, lifting the 10-year yield to its highest level since 2007 on Tuesday.
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In a Wednesday note, San Diego-based Wilsey Asset Management's chief investment officer, Brent Wilsey, cautioned that "If the Federal Reserve were to keep rates steady Wednesday, that could surprise stocks, and surprises are rarely received well in markets," and he further noted, "It could also damage the Fed's credibility, and reignite concerns that the central bank is caving to political pressure to keep rates steady." The Trump administration repeatedly pressed the Fed to lower rates.
In a morning note, Jonathan Pryor, Marex's co - head of FX dealing, said the Fed is "moving into a new phase of monetary policy." In his words: "Earlier in the year, it looked like we were entering into a rate cutting cycle that may last for six or twelve months, but now it feels like the tables have turned." He added that central banks are trying to make sound choices to tackle mainly supply-side inflation while global bond markets are in the spotlight, calling it "a difficult balance to strike, and one that markets are acutely aware of."
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