US Treasury yields have surged to their highest levels in over two months, mirroring declines observed across global government-bond markets. The increase comes as investors prepare for a series of US debt auctions and await a Federal Reserve interest rate decision that could reshape monetary policy expectations for the coming year.
Yields on US government debt increased between 3 and 6 basis points across the yield curve, with intermediate maturities experiencing the most significant weakening. The US Treasury is scheduled to auction $US58 billion of three-year notes, followed by a $US39 billion sale of 10-year notes and a $US22 billion offering of 30-year bonds on Tuesday and Thursday, respectively.
The Treasury Department adjusted this week’s auction schedule to accommodate the Fed’s two-day meeting. Market expectations heavily favour a third consecutive quarter-point reduction by the central bank, bringing the target range to 3.5 per cent to 3.75 per cent. Attention will be directed towards the officials’ outlook for the next year, particularly in light of persistent inflationary pressures.
According to John Canavan, lead analyst at Oxford Economics, the anticipated Fed rate cut is expected to be accompanied by a hawkish tone, potentially signalling an extended pause next year. Canavan suggests that a strong indication of the Fed’s readiness for a prolonged pause could disappoint investors, given that markets have priced in a greater than 90 per cent probability of another rate cut by April.
