US Two-Year Yield Hits Two-Year High as Fed Hike Odds Rise
Two-year Treasury yields reached 4.79 percent on Tuesday. Investors now price a 53 percent chance of further rate hikes in October.
Key points
- Two-year U.S. Treasury yields hit a two-year high of 4.7879 percent on Tuesday.
- Traders price a 53 percent chance of another Federal Reserve rate hike in October.
- The Treasury auctioned $69 billion in two-year notes as demand for TIPS remains soft.
The two-year U.S. Treasury yield climbed to 4.7879 percent on Tuesday. This level marks a fresh two-year high for the benchmark security.
Investors are weighing recent Federal Reserve actions against persistent inflation risks. The market now prices a 53 percent chance of another rate hike in October.
Market prices reflect rising rate expectations
The Federal Reserve raised rates last week for the first time since 2023. This move aimed to control inflation that remains above the 2 percent target.
CME FedWatch data shows traders expect a further increase at the October meeting. The 10-year yield stayed below 5 percent after touching 5.041 percent last week.
Treasury auction tests investor demand
The U.S. Treasury planned to auction $69 billion in two-year notes on Tuesday. Additional auctions for five- and seven-year securities are expected later this week.
Recent demand for inflation-protected securities has been soft. Last week, investors showed weak appetite for a $19 billion sale of 10-year TIPS.
Inflation expectations remain stubbornly elevated
Five-year breakeven inflation rates stood at 2.34 percent on Tuesday. This figure indicates the market expects inflation to average 2.3 percent annually for the next decade.
Oil prices dipped from their highs but remained elevated. The US-Israeli war on Iran has fueled concerns about sustained inflation and higher interest rates.
