U.S. 10-yr Treasury yields cool below 5% as Fed rate decision approaches

The benchmark yield for U.S. Treasury bonds slipped below 5% early Wednesday, having surpassed that level earlier in the week, according to investing.com. Attention was focused on a potential interest rate hike by the Federal Reserve this week. The 10-year Treasury yield briefly rose to 5.03% on Tuesday before settling at 4.994% by 00:57 ET (04:57 GMT).

Yields had surged this week as markets priced in a higher probability of a 25 basis point rate increase by the Fed at the end of a two-day meeting on Wednesday, which would bring rates to a one-year high. Markets estimated an 89.5% chance of a rate hike from the Fed, as indicated by CME Fedwatch.

Inflation data, soaring oil prices, and warnings from several hawkish Fed policymakers had led markets to prepare for the hike this week. However, the surge in yields softened on Tuesday due to soft New York manufacturing data, raising concerns about the long-term outlook for the economy. Investors also returned to bond markets after extended selling in recent weeks.

Treasury Secretary Scott Bessent defended the economic policies of the Trump administration before Congress on Tuesday, stating that rising bond yields were due to "global issues." However, he acknowledged the need for Washington to address its ballooning fiscal deficit. Bessent also defended Treasury measures to curb yields, particularly its doubling of longer-term debt buybacks.

Nevertheless, yields had surpassed Bessent's recent measures, prompting markets to watch whether the 10-year rate's breach of 5% would prompt additional actions from the Treasury.