US 10‑Year Treasury Holds Steady Above 5% Ahead of Fed Decision

At 4:30 a.m. ET, the benchmark 10‑year Treasury yield was flat at 5.004%, while the 20‑year and 30‑year notes traded unchanged at 5.409% and 5.372%, respectively. The Federal Open Market Committee is slated to announce its policy decision at 2 p.m. ET on Wednesday.

Fed funds futures priced in a roughly 92.5 % chance of a 25‑basis‑point hike, up sharply from the 33 % probability a month earlier, according to the CME FedWatch tool.

Recent data show U.S. annual inflation at 3.4 % in August, and the core personal consumption expenditures (PCE) price index rose 3.7 % year‑over‑year in July—Fed’s preferred gauge. Oil prices remain above $100 a barrel, adding to inflationary pressure.

The hot inflation figures have tightened the long end of the Treasury curve, pushing the 10‑year yield to a post‑2007 high on Tuesday.

Brent Wilsey, chief investment officer at San Diego‑based Wilsey Asset Management, warned that a Fed hold could surprise equities and damage the central bank’s credibility. "If the Federal Reserve were to keep rates steady Wednesday, that could surprise stocks, and surprises are rarely received well in markets," he said.

Jonathan Pryor, co‑head of FX dealing at Marex, noted the Fed is "moving into a new phase of monetary policy." He added that earlier in the year the market had expected a rate‑cut cycle lasting six to twelve months, but now the tables appear to have turned.

"Central banks are trying to make sensible decisions and tackle inflation, predominantly supply‑side inflation, at a time when global bond markets are receiving significant attention. It is a difficult balance to strike, and one that markets are acutely aware of," Pryor said.