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US Treasury yields climb higher as Fed kicks off December meeting

Key Points
  • A two-day monetary policy meeting by the U.S. Federal Open Market Committee kicked off Tuesday.

U.S. government debt yields rose Tuesday, as day one of a two-day Federal Open Market Committee (FOMC) meeting began.

The yield on the benchmark 10-year Treasury note sat higher at around 2.415 percent at 11:46 a.m. ET, while the yield on the 30-year Treasury bond was up at 2.8 percent. Bond yields move inversely to prices.

U.S. Markets Overview: Treasurys chart

The FOMC was the center of attention Tuesday. The policy-making arm of the Federal Reserve is widely expected to hike rates for a third time in 2017, marking the end of chair Janet Yellen's tenure at the central bank.

The body is expected to deliver its decision on interest rates Wednesday.

In October, Fed minutes showed that a rate hike was all but certain during this holiday month, despite the low level of inflation. Investors will also be waiting with bated breath to seen what the U.S. central bank could say on U.S. tax reform. With Republican fiscal stimulus looking more certain, the central bank may seek to rein in rates in an effort to dampen any market overheating.

In other news, data boosted yields higher Tuesday morning after the U.S. Labor Department reported that producers in the United States posted the biggest annual gain in prices in nearly six years.

The Labor Department said that its producer price index (PPI) for final demand increased 0.4 percent last month, pushing its 12-month gain through November to 3.1 percent.

While the Federal Reserve tracks both the PPI and CPI for insights into inflation, the central bank's preferred gauge is the the personal consumption expenditures (PCE), due out later this month.

The Treasury Department auctioned $12 billion in 30-year bonds at a high yield of 2.804 percent.
The bid-to-cover ratio, an indicator of demand, was 2.48. Indirect bidders, which include major central banks, were awarded 61.9 percent. Direct bidders were awarded 9 percent.

Politics will remain at the back of investors' minds, as markets keep a close eye on any developments coming out of the U.S. administration, whether that be related to Russia, overhauling the U.S. tax system or President Donald Trump's recent announcement that the U.S. would recognize Jerusalem as the capital of Israel — a move which received backlash from many Middle Eastern nations.

Looking to the auctions space, the U.S. Treasury is set to auction $12 billion in 30-year bonds.