The yield on the benchmark 10-year U.S. Treasury note rose to a more than 11-year high on Monday, as investors braced for a policy decision by the Federal Reserve on Wednesday, which is expected to raise interest rates again sharply.
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 hike and a 20% chance of a 100 basis point hike.
Selling pressure was more concentrated 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 peak of 4.47%.
Even so, fears are growing that the economy could slip into recession and prompt policymakers 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 point higher than the 10-year Treasury yield and about 0.37 percentage point higher than the 30-year Treasury yield.
Citi strategist William O’Donnell said that if 10-year yieldSustained gains above 3.5% could test “support around 3.76%, a high that has not been approached since February 2011.”