U.S. Treasury yields eased on Tuesday as traders positioned for Wednesday’s Federal Reserve decision, which the FOMC is expected to end with its benchmark rate unchanged at 3.75%. Euro-area borrowing costs stayed near multiyear highs after an ECB policymaker said a September hike is still needed, while a pause in U.S.-Iran hostilities pushed oil lower.
Treasury yields continued to retreat on Tuesday as traders awaited this week’s Federal Reserve interest rate decision. The 10-year note yield fell more than one basis point to 4.628%, the main benchmark for mortgages, auto loans and credit card debt.
Shorter and longer maturities moved with it. The 2-year yield, which tends to react in line with short-term Fed decisions, was one basis point lower at 4.31%. The longer-dated 30-year yield eased nearly one basis point to 5.118%.
Markets look past Wednesday’s hold
The rate-setting Federal Open Market Committee is expected to leave rates unchanged at 3.75% when it announces its decision on Wednesday. Traders are already positioned for what follows: CME Group’s FedWatch tool showed markets pricing a 56% chance of a September hike.
That leaves the tone of the statement, not the level, as the week’s variable. Investing.com reported growing speculation over whether Fed Chair Kevin Warsh could deliver a hawkish surprise or explicitly keep the door open for a near-term rate hike.
German yields sit within reach of 2011 levels
Across the Atlantic, the German two-year yield, which closely tracks short-term ECB policy expectations, edged down to 2.75%. The benchmark 10-year Bund yield slipped slightly to 3.10%, staying within striking distance of its highest levels since 2011.
Those levels held because policymakers keep pointing at further tightening. ECB Governing Council member Peter Kazimir said a September interest rate hike remains necessary even if the Eurozone’s economic outlook shows signs of improvement.
Elevated sovereign yields also raise debt-servicing costs for Eurozone governments while anchoring higher corporate loan and mortgage rates across the region.
Oil extends its slide as the Iran pause holds
The ongoing pause in U.S.-Iran hostilities has continued to push oil prices lower, raising hopes of a more sustainable ceasefire arrangement. West Texas Intermediate futures were 1.6% lower at $81.27 per barrel on Tuesday. Brent crude, the global oil price benchmark, was 2% lower at $86.63.
According to CNBC, President Donald Trump said the U.S. had held “good talks” with Iran on Monday.
The Bank of England and the Bank of Japan follow the Fed with their own policy announcements, which are expected to offer clearer guidance on the global interest rate trajectory.
Sources: CNBC, Investing.com
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