Treasury yields rose on Wednesday morning as the Federal Open Market Committee prepared to deliver its decision at 14:00 ET. In Asian trade the two year yield rose 1.9 basis points to 4.755 percent and the 10 year rose 3.3 basis points to 5.025 percent, according to Tradeweb levels reported by Dow Jones, and in European morning trade the 10 year was up 1.8 basis points at 5.010 percent, with euro area and UK yields also higher on the day.
The rise is a cheapening into the event, not a change of view. At the latest close in this site’s market tables, the five year yield stood at 4.84 percent, up 1.6 basis points on the day and down 9.5 on the week, the 10 year at 4.99 percent, up 0.7 on the day and down 12.4 on the week, and the 30 year at 5.30 percent, up 0.4 on the day and down 12.0 on the week. The dollar index stood at 102.39, up 0.07 percent on the day and 0.6 percent on the week, after touching its highest since October 14 on Tuesday, Reuters reported.
Pricing for today is settled and pricing for December is the argument. Money markets put a 91 percent probability on no change today, according to LSEG data reported by Dow Jones, matching the 91 percent implied by CME FedWatch in Reuters’ reporting, and a hike is almost fully priced for December. Amundi’s Alessia Berardi, quoted by Dow Jones, put the consensus case plainly: patience should not be confused with complacency, the labour market looks less strong and market rates remain high, but the inflation outlook has not changed, so the Fed still has accommodation to remove.
Beyond the decision, supply is the next test. Investors are looking ahead to the Treasury’s quarterly refunding announcement next week, and Deutsche Bank strategists noted that the Treasury’s questionnaire for primary dealers ahead of that announcement, asking about structural changes in investor demand and expectations for future auction sizes, was an important step toward a discussion of adjusting long end issuance after the selloff that took 10 and 30 year yields to 24 year highs earlier in October.