Treasury Yields Rise Ahead of Fed, Two-Year Auction — Market Talk

What happened

Treasury yields rose to start the week before the Federal Reserve meeting. Markets priced a 91% chance of an interest rate hold Wednesday, per CME. The Treasury prepared to auction $69 billion in two-year notes, with the 10-year yield at 4.995%.

Confirmed

Global impact / market context

Higher yields raise borrowing costs across the economy, which can squeeze company profits and make future cash flows worth less today. The $69 billion two-year auction tests whether buyers demand more yield to absorb new government debt, a signal of demand for US borrowing.

Analyst inference

Investors see a near-certain rate hold Wednesday but expect hikes to resume in December. Third-quarter GDP and September PCE inflation data Thursday could shift those expectations, while a heavy week of Treasury auctions adds supply that may pressure yields further.

Analyst inference

What to watch

1. The Treasury auctions $69 billion in two-year notes at 1 p.m. ET, followed by a $70 billion five-year tender tomorrow and $44 billion in seven-year notes Thursday. Confirmed
2. Traders should watch for hikes resuming in December, as markets expect, because a later start would lower short-term yields and support rate-sensitive assets. Proposed
3. Watch Thursday's GDP and PCE inflation data: stronger growth or sticky inflation could push yields higher, raising company borrowing costs and pressuring stock valuations. Analyst inference

Evidence

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