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Bond Report: Treasury yields rise to highest in almost three years as Fed settles into its two-day meeting

Two-, 10- and 30-year Treasury yields rose to their highest levels since roughly mid-2019 on Tuesday, as the Federal Reserve began its two-day policy meeting and Russian and Ukraine officials prepared for more talks while war dragged on.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.150%

rose 2.1 basis points to 2.160% from 2.139% at 3 p.m. Eastern time on Monday. Tuesday’s level is the highest for the yield since May 30, 2019, based on 3 p.m. levels, according to Dow Jones Market Data.

The 2-year Treasury note yield
TMUBMUSD02Y,
1.859%

rose less than 1 basis point to 1.855% from 1.847% on Monday afternoon. That’s the highest since July 31, 2019.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.495%

rose 2.9 basis points to 2.503% from 2.474% late Monday. That’s also the highest since July 31, 2019.

What’s driving the market?

Treasury yields were higher after reversing course from earlier in the day, when flight-to-quality buyers returned to government bonds and drove yields lower during the New York morning.

Meanwhile, the Fed’s two-day policy meeting got underway, with central bank policy makers expected to deliver a 25 basis point increase in the benchmark fed funds rate on Wednesday. Investors will be focused on how Chairman Jerome Powell talks about the Russia-Ukraine war, which has sent commodity prices soaring and is affecting the outlook for both economic growth and inflation.

Read: Fed to hike interest rates Wednesday, undeterred by lack of visibility on Russia-Ukraine war’s impact

In data releases, the U.S. producer-price index jumped 0.8% in February, compared with the 0.9% monthly rise forecast by economists surveyed by The Wall Street Journal. The increase in wholesale prices over the past year stayed at 10% for the second month in a row.

The New York Fed’s Empire State business conditions index plunged 14.9 points to minus 11.8 in March, the regional Fed bank said Tuesday. Economists had expected a reading of 5.5, according to a survey by The Wall Street Journal.

Russian and Ukraine officials continued talks on Tuesday, though negotiations failed to produce a breakthrough on Monday, and Russian forces continued to pound Ukrainian cities as fighting intensified.

What are analysts saying?

“Tuesday was a choppy session in US rates,” said Ian Lyngen and Ben Jeffery of BMO Capital Markets. “After initially rallying throughout most of the day, the curve bear steepened in the afternoon as 10-year yields edged back toward the highs and the front-end of the curve managed to retain a bid. The steepening has further eroded the strong flattening trend that was in place until March 8.”

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