U.S. government debt yields traded flat Monday as an equity sell-off spooked investors into safer assets like Treasurys, a day ahead of a Federal Open Market Committee meeting.
Before equity markets opened, the yield on the 2-year Treasury note hit a high yield of 2.32 percent, its highest level since Sept. 9, 2008, when the 2-year yielded as high as 2.375 percent.
The yield on the benchmark 10-year Treasury note was flat at around 2.843 percent at 2:29 p.m. ET, while the yield on the 30-year Treasury bond was flat at 3.08 percent. Bond yields move inversely to prices.
Investors are looking ahead to this week's two-day Federal Open Market Committee (FOMC) meeting — which is to be headed up by newly-appointed Chair Jerome Powell. The central bank is expected to raise interest rates for the first time in 2018.
"You can see that bonds are off their highs after the declines in equities, but the next piece of economic information is on Wednesday," said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management. "The market's very fearful: If we do get a bearish hike, some would call that a policy mistake. ... Inflation, while showing signs of life, could have a long slog ahead."
Wall Street traders speculate Powell will remove the restriction of raising rates only at quarterly meetings and start holding news conferences after each of the eight meetings the FOMC holds each year. The new chair appears more willing to speak off the cuff than his predecessors Yellen or Bernanke, a more casual approach.
According to the CME Group's FedWatch tool, Wall Street expectations for a rate hike at the March meeting were greater than 90 percent as of Monday morning.
US 10-year and 2-year note yields 12-month chart
Source: FactSet
"Paced by cyclical tailwinds from fiscal policy, a relatively tight labor market amid easy financial conditions, and trailing inflation and inflation expectations that are rising, the tone coming from FOMC speeches have become incrementally hawkish," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group.
"We believe that it may very well be the Fed's longer-run projections that move most, while the median number of Fed hikes this year stays at three," Wizman added. "If so, we think that the FOMC meeting, will, if nothing else, steepen the U.S. Treasury yield curve a bit, reversing the recent trend of flattening."
Treasurys
Markets around the world also remained on edge during Monday's session as concerns over trade lingered.
Forty-five U.S. trade associations — which represent some of the biggest firms in the country — have urged President Donald Trump to not inflict tariffs on China, stating in a letter that this would likely be "particularly harmful" to both U.S. consumers and the economy; Reuters reported.
G-20 financial leaders are due to meet in Argentina on Monday, where trade will likely be top of the agenda.