Treasury Yields Bounce Back Amid Inflation Concerns

US Treasury yields have broken their three-day losing streak as markets await the Federal Reserve's interest rate decision. The yield on the benchmark US 10-year note increased by 1.2 basis points to 4.616%, while the 2-year note rose by 2.4 basis points to 4.301%. Despite falling from July highs, yields are poised for significant monthly increases amid growing inflation concerns driven by higher oil prices.

Investors are increasingly betting on interest-rate hikes, with some expecting a 25-basis-point rate hike. The CME FedWatch Tool shows traders still see a near 32% chance of this outcome. While markets largely expect the Fed to keep interest rates unchanged, analysts caution that investors remain cautious about this outcome.

The labour market is not contributing to inflation, according to BCA Research analysts. They point to falling one- and five-year inflation swaps as evidence that investors do not expect inflation to rise significantly or remain high over the medium term. Data earlier this month showed US job growth slowed sharply in June and payroll gains for the prior two months were revised lower.