NEW YORK: Short-dated US Treasury yields hit multi-week peaks on Monday ahead of three- and 10-year note auctions, while uncertainty about whether the Federal Reserve will take a hawkish or dovish stance this week limited the move higher in yields.
The US Treasury will auction 3-, 10- and 30-year debt totaling $56 billion this week. Traders typically sell Treasuries ahead of auctions to make way for the new supply of government debt, pushing yields higher.
US two-year yields touched 1.359 percent, their highest in a month, while three-year yields touched their highest since May 24 at 1.500 percent ahead of three- and 10-year note auctions on Monday. Yields on Treasuries maturing between five and 30 years also hit session highs, but remained below Friday's levels.
Investors were cautious ahead of the Fed's two-day meeting beginning on Tuesday, with analysts saying the US central bank could take an aggressively hawkish posture of signaling a balance sheet reduction later this year and another interest rate increase in December.
"Wednesday's meeting is pretty much a high-risk event," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
Rates futures prices mirrored Wall Street's consensus that Fed policymakers would raise key overnight borrowing costs by a quarter point to a target range of 1.00 percent to 1.25 percent at the end of the two-day meeting on Wednesday.
Prices suggested traders were uncertain about whether the Fed would embark on a third rate increase in 2017, however, and implied traders have not fully priced in the Fed's target range on rates reaching 1.25 percent to 1.50 percent until late 2018.
The Fed could take the hawkish stance of hinting it could taper its balance sheet in September while also hiking rates again in December, said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York.
Treasury yields could fall, however, if the Fed takes a more dovish stance of signaling it will taper this year but not hike rates in the second half of 2017, Kohli said. A more dovish stance is seen as possible in part due to recent signs of softening inflation.
That uncertainty over Fed policy kept yields from moving even higher on Monday, Kohli said.
Benchmark 10-year Treasuries were last down 5/32 in price to yield 2.216 percent, from a yield of 2.199 percent late on Friday. US 30-year yields were at 2.866 percent, up from 2.853 percent late on Friday.
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