US 2-year note yield hits 2008 high, 5-year rate at 2010 levels as Fed meeting begins

  • The FOMC members convened today and are expected to see the central bank raises interest rates for the first time in 2018.
  • The yield on the two-year Treasury note topped 2.35 percent, its highest level since August 2008, while the yield on the five-year note hit 2.7 percent, its highest since April 2010.

U.S. government debt yields rose on Tuesday as the Federal Open Market Committee (FOMC) began a two-day meeting, with the yield on the two-year Treasury note clinching a nine-year high and the five-year note notching a seven-year high.

The yield on the two-year Treasury note topped 2.35 percent, its highest level since August 2008, while the yield on the five-year note hit 2.7 percent, its highest since April 2010.

Meanwhile, the yield on the benchmark 10-year Treasury note was higher at around 2.9 percent at 6:56 p.m. ET, while the yield on the 30-year Treasury bond was higher at 3.133 percent. Bond yields move inversely to prices.

US 2-year and 5-year Treasury note yields 10-year chart

Source: FactSet

Leaders of the FOMC convened Tuesday for the first of a two-day meeting on monetary policy and adjustments to the federal funds rate. The Federal Reserve's policy arm is expected to raise interest rates for the first time in 2018, the first led by newly-appointed Fed Chair Jerome Powell.

"The interesting part of the meeting is really looking at the other items: what will the dot plot look like? Do we see those dots start to shift higher?" said Victoria Fernandez, Managing Director at Crossmark Global Investments, and Head of Fixed Income. [But] "I think there's more risk to the downside in yields than upside … You've started to see some of that get priced in, we're almost 40 percent priced in for that fourth December rate hike. The surprise will be if we don't get that."

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Though investors are eager to see whether the Fed indeed hikes rates, they will also be paying close attention to whether the Federal Reserve comments on key topics such as inflation, the state of the U.S. economy and politics. Revisions to long-term expectations and its rate hiking schedule would likely impact the bond market as the return on debt fluctuates.

While trade has shaken up markets as of late, the Fed may choose to not mention the topic of potential trade wars, in order to keep markets at bay.

"If we look at the testimony he did earlier in the month, he was pretty careful not to get dragged into conversations," added Fernandez. "He was quite candid, however, and wasn't afraid to answer questions. Powell will be very deliberate ... I'm not sure he'll get dragged into the tariff issue."