FX.co ★ Treasury Yields Near 3-Week Lows

The yield on the US 10-year Treasury note fell to 4.44% on Tuesday, its lowest level in nearly three weeks, as declining oil prices and expectations of easing inflationary pressures increased demand for government bonds. Sentiment was further supported by a provisional peace agreement between the US and Iran, which could help moderate energy costs and lessen the need for additional aggressive monetary tightening.

In response, traders have reduced their expectations for further Federal Reserve rate hikes this year. Current market pricing implies roughly a 56% probability of a rate increase by December. Attention is now focused on the two-day FOMC meeting that begins today, with policymakers widely expected to leave the federal funds rate unchanged in the 3.50%–3.75% range.

This meeting will be the first chaired by Kevin Warsh, and investors will closely examine the Fed’s updated economic projections as well as any forward guidance on the future path of monetary policy.