The yield on the benchmark 10-year US Treasury note rose to a more than 11-year high on Monday, as investors braced for a policy decision from the Federal Reserve on Wednesday, which is expected to raise interest rates sharply again.
The world’s most important interest rate benchmark, the 10-year government bond yield, rose as much as 6.6 basis points to 3.516%, surpassing the mid-June level and the highest level since April 2011.
The Fed meets on Wednesday. Money markets are pricing in about an 80% chance of a 75 basis point rise and a 20% chance of a 100 basis point rise.
Selling pressure focused more on the 2-year Treasury note, the most sensitive to Fed policy, with its yield rising 7.5 basis points to 3.94%, its highest level since October 2007.
Investors also raised expectations that the Fed could eventually push policy rates to a peak in early 2023, with the March OIS contract showing a high of 4.47%.
However, fears are growing that the economy could slide into recession and prompt policy makers to start cutting interest rates next year. This is evidenced by the deepest yield curve inversion since 2000. The 2-year Treasury yield was 0.42 percentage points higher than the 10-year Treasury yield and about 0.37 percentage points higher than the 30-year Treasury yield.
Citi strategist William O’Donnell said if the 10-year yield continued to rise above 3.5%, it could experience “support around 3.76%, not seen since February 2011. approaching highs.”