NEW YORK- Benchmark 10-year yields on Monday held just below 16-year highs reached last month before the Federal Reserve on Wednesday is expected to leave rates unchanged but could signal that it is open to further increases.
Rising oil prices have raised concerns that inflation could remain stubbornly elevated, and make the US central bank more likely to keep tightening.
Data last week showed that US consumer prices increased by the most in 14 months in August as the cost of gasoline surged.
“The narrative is – is inflation increasing? Does that necessarily keep the Fed on the sidelines if these numbers continue to show strength,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG in New York.
The 10-year yields were little changed on the day at 4.317 percent , and were holding just below the 4.366 percent level reached on Aug. 22, which was the highest since 2007.
“Right now, the market is teetering on the high yields of the year, and I think that it’ll be make-or-break depending on what the Fed does and what their rhetoric is,” di Galoma said.
Fed officials will also release their latest predictions on the economy and where rates are likely to be over the coming quarters when it concludes its two-day meeting on Wednesday.
Fed funds futures traders are pricing in a 31 percent chance that the Fed hikes in November, and see a 42 percent chance of a hike by December, according to the CME Group’s FedWatch Tool. – Reuters
