U.S. Treasury yields pulled back slightly on Wednesday morning ahead of the Federal Reserve‘s key monetary policy announcement.
The yield on the benchmark 10-year Treasury note slid to just below 3.41%, having notched an 11-year high of 3.48% on Tuesday, while the yield on the 30-year Treasury bond dropped to 3.3840%. Yields move inversely to prices.
The Federal Open Market Committee will conclude its two-day meeting on Wednesday, and is expected to take aggressive action on interest rates in a bid to rein in inflation. The U.S. consumer price index rose by an annual 8.6% in May, its highest year-on-year increase since 1981.
Traders had initially been looking for a 50-basis-point interest rate hike, but in light of the red hot inflation print, the market is now pricing a more than 95% chance of a 75-basis-point increase, the biggest since 1994, according to the CME Group’s FedWatch tool. (1 basis point equals 0.01%)
The Federal Open Market Committee in May raised the target range for the federal funds rate to 0.75% to 1%, from 0.25% to 0.5%.
On the data front, May’s retail sales figures are due at 8:30 a.m. ET.
An auction will be held Wednesday for $30 billion of 119-day Treasury bills.
Over in Europe, the European Central Bank will hold an unscheduled monetary policy meeting on Wednesday, with bond yields surging for many governments across the euro zone.