Treasury yields rise after three-day fall as oil jumps, Fed decision on deck

Markets are largely expecting the Fed to hold rates steady at its announcement later on Wednesday, but have not completely ruled out the possibility that the central bank increases rates, pricing in a 35.8% chance for a hike of at least 25 basis points, according to [CME FedWatch](https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/fed-funds.html). A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 31.8 basis points. Goldman Sachs analysts said in a note they expect the Fed to hold rates steady on Wednesday, but the "repricing of Fed hike risk has set the stage for today's FOMC decision to deliver the largest non-cut meeting day surprise in almost 30 years." The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 2.7 basis points to 4.304% after rising to 4.324%. While there may be a higher bar for a rate hike than markets are pricing in, markets will also grapple with Warsh's policy to avoid guidance about the potential path of interest rates. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.183% after closing at 2.171% on Tuesday, its lowest close since November 2024. The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.202%, indicating the market sees inflation averaging about 2.2% a year for the next decade. (Reporting by Chuck Mikolajczak; additional reporting by Shashwat Chauhan in Bengaluru; Editing by Amanda Cooper, Will Dunham and Mrigank Dhaniwala) The climb in crude prices comes ahead of a policy statement from the Federal Reserve, while recent comments from central bank officials, including Chairman Kevin Warsh, have flagged concerns about price pressures over the labor market. However, the most recent readings on consumer and producer prices indicated inflation was cooling, denting expectations for a rate hike. "For today, the market is focused on the new headlines relating to the Middle East, and focus will shift pretty rapidly here to the Fed meeting that we'll hear the results of this afternoon," said Bill Merz, head of capital markets research and portfolio construction at U.S. Bank Wealth Management in Minneapolis. Merz said that the relationship between crude and Treasury yields had become weaker in recent weeks but "there's been a little bit of reattachment to oil markets with respect to how the 10-year Treasury is trading." "There's been a lot of stop-and-start news out of the Middle East, and I think until we get some sort of resolution, that's a bit more durable, we'll continue to see that headline risk crop up," Merz said. The yield on the 30-year bond US30YT=RR edged up 0.8 basis point to 5.104% after climbing to 5.113%. NEW YORK, July 29 (Reuters) - U.S. Treasury yields were on track to snap a three-day run of declines on Wednesday after crude oil prices surged, as major fighting in the [Iran war](https://www.reuters.com/world/iran/) resumed and stoked inflation worries ahead of a Federal Reserve policy meeting later in the day. Crude prices shot up around 7% after the United States and Saudi Arabia jointly struck Iran-backed armed groups in Iraq on Wednesday, the first U.S. airstrikes in the Middle East since President [Donald Trump](https://www.reuters.com/topic/person/donald-trump/) suspended the American bombing campaign against Iran last week. In addition, Iran said it had fired on U.S. bases in Jordan and at ships in the Strait of Hormuz, prompting Trump to promise retaliatory strikes. U.S. crude CLc1 was last up 6.79% to $84.64 a barrel and Brent LCOc1 rose to $89.98 per barrel, up 7% on the day. The yield on the benchmark U.S. 10-year Treasury note US10YT=RR gained 2.1 basis points to 4.625% after climbing to 4.6387%.

Treasury yields rise after three-day fall as oil jumps, Fed decision on deck

Rate expectations shift

Fed policy meeting awaited

Yields rise as oil jumps and Fed meeting approaches

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