Treasury Yields Rise as Traders Increase Bets on Another Fed Rate Hike

U.S. Treasury yields advanced on Tuesday as investors weighed hawkish signals from the Federal Reserve against a drop in oil prices, leading to increased bets on further monetary tightening.

Short-Term Yields Hit New Highs

The yield on the 2-year U.S. Treasury note, which is highly sensitive to shifts in Federal Reserve policy expectations, reached a new two-year high of 4.7879%. This move underscores the market's growing conviction that the central bank will continue its fight against inflation.

Meanwhile, the benchmark 10-year Treasury yield also edged higher. The note's yield remained below the 5% threshold after touching 5.041% last week, a level not seen since 2007, according to the source report.

Fed Hike Probabilities Increase

Ad

Driving the bond market moves are expectations that the Fed will enact another rate hike following its increase last week, the first since 2023. According to the CME FedWatch tool, traders are now pricing in a 53% probability of another rate increase at the Fed's upcoming October meeting.

These expectations were reinforced by public comments from Boston Fed President Susan Collins. On Tuesday, Collins stated her support for the central bank's recent decision to raise rates, citing risks that inflation could remain above the Fed's 2% target.

Market Context

Investors were also monitoring commodity markets, where oil prices fell but recovered from their session lows. The source noted that recent price jumps, linked to geopolitical tensions, have fueled concerns about persistent inflation and the potential for higher interest rates to combat it.