NEW YORK: US Treasury yields fell on Wednesday with longer-dated yields receding from four-month highs as traders braced for a possible third interest rate increase this year from the Federal Reserve in response to solid economic growth.
Bond yields had risen in recent days on bets the Fed may lift rates more times this year than previously thought, and as worries eased over trade tensions between China and the United States and competition from higher-yielding corporate bond supply.
The Federal Open Market Committee, the central bank's rate-setting group, has been widely expected to increase its target range on key overnight borrowing costs by a quarter point to 2.00-2.25 percent after a two-day policy meeting.
Fed officials will also provide their first projections on the economy and interest rates in 2021, which traders would use to determine the number of rate hikes in the coming months
Further rate increases put the Fed into "tightening" territory, where borrowing costs would run above the core personal consumption expenditure (PCE), the Fed's preferred inflation gauge, and slow business and consumer activities, analysts said.
"The market has priced in 'real' tightening in early 2019 - where the target is well in excess of core PCE," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. "Two more years of hikes past that date would still represent a long tightening phase against old-style Fed cycles."
Interest rate futures implied traders fully expect the FOMC to raise rates at its latest policy meeting. They also signaled they saw an 82 percent chance of a rate increase to 2.25-2.50 percent at FOMC's Dec. 18-19 meeting, CME Group's FedWatch program showed.
For 2019, traders are pricing in the chance of two rate increases, according to rate futures. This compared with a median outlook for three hikes among Fed officials in their projections released back in June.
The Fed will release its rate decision and economic projections at 2 p.m. (1800 GMT), followed by a press conference from Fed Chairman Jerome Powell at 2:30 p.m. (1830 GMT).
At 9:57 a.m. (1357 GMT), benchmark 10-year Treasury yield was 3.085 percent, down 2 basis points from Tuesday. On Tuesday, it reached 3.113 percent, its highest since May, Reuters data showed.
The 30-year yield was down nearly 2 basis points at 3.083 percent after hitting a four-month peak of 3.249 percent on Tuesday.
Two-year yields slipped 1 basis point to 2.831 percent after touching 2.847 percent on Tuesday, which was last seen in June 2008.
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