Two-Year U.S. Treasury Yield Touches 4% Ahead of Fed Decision

U.S. Treasury prices were choppy Wednesday ahead of the Federal Reserve’s latest interest-rate decision, with short-term yields reaching new multiyear highs even as longer-term yields edged lower.

In recent trading, the yield on the benchmark two-year Treasury note—which is highly sensitive to the near-term interest-rate outlook—was hovering around 4%, marking another landmark in this year’s relentless rise in interest rates.

The yield touched 4.008% before slipping back to 3.993%, according to Tradeweb. That was up from 3.962% Tuesday—already the highest close since Oct. 2007.

Meanwhile, the yield on the 10-year note was 3.561%, down from 3.571% Tuesday, its highest close since March 2011.

Yields, which fall when bond prices rise, slipped overnight after Russian President

Vladimir Putin

took steps to escalate the war in Ukraine, ordering the mobilization of reserve forces and hinting at Russia’s nuclear-weapons capabilities.

The decline in longer-term yields, though, was modest and the Fed’s looming interest-rate decision was poised to quickly take over all of investors’ attention.

Thanks to persistent inflation pressures, most investors expect the central bank to raise short-term interest rates by 0.75 percentage point for the third consecutive meeting, bringing its benchmark federal-funds rate to a range between 3% and 3.25%. Many investors also expect that officials will forecast a fed-funds rate of at least 4% by the end of the year, up from their previous forecast of roughly 3.4%.

Stubbornly high inflation and expectations for higher interest rates have been a driving force pushing bond yields higher all year. The 10-year yield has climbed from just under 1.5% at the end of 2021 and around 2.6% at the start of August.

Yields fell in early summer as investors became increasingly concerned that the U.S. was already in or entering a recession. They have rebounded since as those worries receded, and Fed officials emphasized that their overwhelming priority was fighting inflation, even if it meant some pain for the economy.


What’s your current approach to bonds? Join the conversation below.

Two types of economic data have most spooked investors. One is a variety of measures showing rapidly rising wages, which many believe to be the most important contributor to inflation over the longer term. The other is inflation data itself, with last week’s consumer-price-index report showing another big jump in so-called core prices that exclude volatile food and energy categories.

The result has been a high degree of uncertainty.

“It’s a foregone conclusion that the Fed’s going to continue to hike,” said Jim Vogel, interest-rates strategist at FHN Financial. “There is zero conclusion about when the Fed might slow rate hikes or the economy will show any impact from tighter monetary policy.”

Investors and economists pay close attention to Treasury yields because they set a floor on borrowing costs across the economy and set a benchmark forward-looking return against which other assets are measured.

So far this year, rising yields have helped lift 30-year fixed mortgage rates above 6% for the first time since 2008. They have also punished stocks by decreasing the value of companies’ expected earnings. 

Write to Sam Goldfarb at

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