Market Moves
Bond Yields Rise Ahead of FOMC Meeting
Ten-year Treasury yields hit their highest level since 2007 amidst inflation concerns, rising oil prices and the potential for higher rates.
Reported by Matt Toledo
Yields on the U.S. 10-year Treasury note were greater than 5% for the second day in a row on Tuesday, the highest level since 2007, as rising oil prices and persistent inflation have increased expectations that the Federal Reserve Open Market Committee will raise its overnight lending rate by 25 basis points when it votes on Wednesday.
“Two inflation readings (PPI and CPI) are influencing the markets to price in a [roughly] 90% chance that the FOMC will increase the Fed Funds rate by 25 basis points at this week’s meeting,” stated a September 14 fixed-income primer from Raymond James. “Those odds were at [roughly] 60% at the start of last week.”
Investors and consumers are closely watching policymakers for signals indicating if Wednesday’s move will be a one-time adjustment or the start of a renewed tightening cycle. It also puts Federal Reserve Chair Kevin Warsh, who is expected to speak about the decision after the vote, at odds with President Donald Trump, who has consistently called for rates to be lowered.
“A hike would reinforce Chair Warsh’s hawkish repositioning since [the Federal Reserve’s late-August economic symposium in] Jackson Hole[, Wyoming], underscoring his inflation-fighting credibility and independence from the administration,” said Jeff Schulze, head investment strategist at the Franklin Templeton Institute, in a statement. “With fed funds futures pricing a [greater than] 90% probability of a September move—and inflation now above target for 65 consecutive months—the committee has little room to disappoint. A failure to deliver on current market pricing would risk a disorderly [bond] selloff at the long end.”
Recent comments from Warsh suggested he has a strong focus on restoring the Fed’s inflation-fighting credibility, but this meeting will provide the first real indication of how that translates into policy, wrote Felipe Villarroel, a portfolio manager at TwentyFour Asset Management, in a statement. “At the same time, rising Treasury yields reflect not only higher inflation expectations but also higher real yields driven by increased government borrowing and ongoing policy uncertainty.”
The resilience of the U.S. economy has also tempered concerns that a 25-basis-point move could disrupt it. Despite higher borrowing costs, spending tied to artificial intelligence infrastructure has remained a major source of economic activity this year.
“While follow-through on the market-implied hiking path remains uncertain, a single 25-bps move is unlikely to meaningfully disrupt the economy, given the relative rate-insensitivity of AI-related [capital expenditures],” Schulze said in a statement. “We therefore see limited near-term risk to unemployment or asset prices.”
The FOMC’s action directly impacts overnight lending and other short-term yields, but the economic and geopolitical conditions putting pressure on the short end of the yield curve are also sending long-term yields higher.
The clearing rate on auction Tuesday of a new series of 20-year Treasury bonds was 5.42%, the highest yield since 1986. The higher yield on the longer bonds shows that buyers demanded steeper returns on money lent to the federal government. Yield on the 30-year Treasury bond settled at 5.371%.
Higher yields on longer-term federal debt can have a broader impact on the economy, as mortgage rates, which have risen in 2026, and credit card interest rates are often set based on the Treasury rates.