Treasuries-10-year yields set for biggest drop in a month as oil tumbles

While investors broadly expect the Fed to hold its main lending rate steady on Wednesday, money market participants are seeing a one-in-three chance that central bank could hike rates, according to LSEG-compiled data.

Last month, Fed Chair Kevin Warsh, in his first meeting at the helm of the central bank, moved quickly to trim the Fed's public messaging, delivering a shortened policy statement and explicitly declining to offer forward guidance - a return to a format similar to that used by former Chair Alan Greenspan.

Traders are nearly fully pricing in the chance of September rate hike, along with a 68% chance of an additional hike by year-end.

Interest-rate expectations have turned dramatically from where they were at the start of the year. Bets have flipped from rate cuts in the second of the half of the year to possibly two rate hikes, as the oil spike stemming from the Iran war flamed inflation worries.