Ten-Year Yield Reaches 15-Year High Ahead Of Fed Announcement

Treasuries fluctuated over the course of the trading day on Tuesday but maintained a negative bias throughout the session.

Bond prices regained ground after seeing early weakness but moved back to the downside going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 4.6 basis points to 4.365 percent.

With the increase on the day, the ten-year yield ended the session at its highest closing level in well over fifteen years.

The weakness among treasuries came as traders remained on edge ahead of the Federal Reserve’s monetary policy announcement on Wednesday.

While the Fed is widely expected to leave interest rates unchanged, traders will pay close attention to the accompanying statement and the central bank’s projections for clues about the outlook for rates.

CME Group’s FedWatch Tool is currently indicating a 99.0 percent chance the Fed will leave rates unchanged this week.

Meanwhile, the likelihood of another rate hike in November has seemingly decreased in recent days, with the FedWatch Tool currently indicating just a 28.9 percent chance of a quarter point rate increase.

“The risks for headline inflation to heat up over the next couple of months are rising and that should complicate what the Fed does,” said Edward Moya, senior market analyst at OANDA.

“Do policymakers become convinced that despite a resilient labor market, pricing pressures will continue to ease?” he added. “If core inflation shows it is struggling to continue to drop, the higher-for-longer rate regime will last a lot longer than the market is pricing in.”

In U.S. economic news, the Commerce Department released a report showing a sharp pullback in U.S. housing starts in the month of August.

The report said housing starts plunged by 11.3 percent to an annual rate of 1.283 million in August after jumping by 2.0 percent to a revised rate of 1.447 million in July.

Economists had expected housing starts to decrease to an annual rate of 1.440 million from the 1.452 million originally reported for the previous month.

With the substantial pullback, housing starts tumbled to their lowest level since hitting an annual rate of 1.266 million in June 2020.

Meanwhile, the Commerce Department said building permits surged by 6.9 percent to an annual rate of 1.543 million in August after inching up by 0.1 percent to a revised rate of 1.443 million in July.

Building permits, an indicator of future housing demand, were expected to rise to an annual rate of 1.445 million from the 1.442 million originally reported for the previous month.

With the sharp increase, building permits reached their highest level since hitting an annual rate of 1.555 million last October.

The Fed’s monetary policy announcement is likely to be in the spotlight on Wednesday amid an otherwise quiet day on the U.S. economic front.

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