US stocks ended higher on Tuesday after a choppy trading session and Treasury bond yields were mixed ahead of the Federal Reserve’s latest monetary policy decision.
The US central bank is expected to announce it will raise interest rates by half a percentage point – the first increase of this size since 2000 – in an effort to fight inflation. Consumer prices in the United States rose 8.5% in March, the fastest pace since 1981.
Futures markets are pricing in half-point hikes at the next three policy meetings in June, July and September, with the Fed’s key interest rate expected to end the year around 2.9%, down from 0, 25 to 0.5% today.
The yield on the two-year Treasury bill, which moves with interest rate expectations, rose 0.04 percentage points to 2.77%.
While short-term yields were higher, longer-term ones fell, flattening the yield curve. The yield on the 10-year note, a benchmark for asset pricing and lending rates around the world, fell to 2.98% – it hit 3% on Monday for the first time since 2018.
On Wall Street, the blue-chip S&P 500 index ended the day up 0.5% and the Nasdaq Composite rose 0.2%. Trading volumes on the Nasdaq were 10.4% below the 100-day average and 1.7% below the 100-day average of the S&P 500.
Lou Brien, market strategist at DRW Trading, said: “It’s been really quiet today with people doing last minute accounting before the Fed, adjusting positions before what they do and say tomorrow. . Expectations of a 50 basis point hike have been priced in pretty well at this point.
The dollar index, which measures the US currency against six others and hit a 20-year high last week, fell 0.3%.
Treasury yields have been on the move for weeks ahead of the Fed’s decision. The two-year yield in April hit its highest level since 2018. The 10-year yield’s rise of 2-3% was the fastest of its kind since late 2010.
Sovereign debt yields also climbed in Europe. The yield on the German 10-year Bund, which started the year below zero, rose above 1% for the first time in seven years in European morning trade before stabilizing at 0.96%. The UK equivalent briefly crossed 2% before paring some of its gains to trade at 1.96%.
The upheaval in bond markets came after the Reserve Bank of Australia on Tuesday raised interest rates for the first time in more than a decade, raising borrowing costs 0.25 percentage points higher than expected. and citing inflation which had “rebounded faster”. , and at a higher level than expected”.
Australia’s 10-year bond yield hit 3.4%, a level not seen since 2014, while its more policy-sensitive two-year yield rose 0.2 percentage points to 2.73. %.
The Bank of England is also expected to raise UK interest rates on Thursday to their highest level since 2009. BoE Governor Andrew Bailey said last month that the institution was walking a “very, very fine line between fighting consumer price increases and preventing recession risks by raising borrowing costs too much.