U.S. Treasury yields fell on Tuesday ahead of the start of the Federal Reserve's next meeting, which is expected to conclude with a fresh interest rate policy decision.
The yield on the 10-year Treasury fell by more than 14 basis points to 3.431%. The 2-year Treasury lowered to 3.994% after falling by 14.5 basis points.
Yields and prices have an inverted relationship and one basis point is equivalent to 0.01%.
Treasurys
Janet Yellen stated on Monday that the U.S. could fail to meet its debt obligations on short-term yields as U.S. lawmakers fail to reach an agreement on a debt-ceiling hike.
Rhys Williams, chief strategist at Spouting Rock Asset Management, said that "it's unlikely that there will be no volatility" as uncertainty regarding the U.S. debt ceiling looms.
"It may just be that we, you know, have to get very close to a potential default for the market to really pay attention," Williams said. He noted that during the last U.S. debt ceiling crisis in 2011, stocks and bond markets tumbled.
"So, it's unlikely that there will be no volatility. That being said, we wouldn't urge clients to sell everything because there may be some volatility, but there's probably less than a 2% chance that they actually do default on the debt. I don't think you want to totally position your asset allocation for a black swan outcome," Williams added
The Fed's latest meeting is due to start Tuesday, with fresh policy decisions and guidance expected at its conclusion on Wednesday. Investors are anticipating a further 25 basis point interest rate hike from the central bank.
They will also be closely watching for hints about when rate hikes are likely to be paused or rate cuts could begin. Since the Fed's last meeting, officials have hinted that rates may have to remain elevated for longer as inflation remains uncomfortably high.
Meanwhile, concerns about higher rates putting pressure on the economy and leading to a downturn have spread among investors. In the first quarter, the gross domestic product rose by 1.1% at an annualized pace, far below estimates, according to data released last week. The Job Openings and Labor Turnover Survey also showed an easing labor market, with new job openings growth coming in below expectations in March.