Bond Market Sees 90% Chance of December Rate Hike

Fed Holds Benchmark Rate at 3.75%-4.00%
U.S. 2-Year Treasury Yield Rises to 4.76%

With the U.S. Federal Reserve (Fed) holding its benchmark interest rate steady, the yield on two-year U.S. Treasuries edged higher as bond markets bet on another rate hike in December.

Kevin Warsh, Fed chair. AP-Yonhap News

According to Bloomberg on Oct. 28 (local time), the yield on two-year U.S. Treasuries rose 3 basis points (1 basis point = 0.01 percentage point) after the October Federal Open Market Committee (FOMC) decision was announced, reaching 4.76%. Two-year Treasury yields are sensitive to the Fed's monetary policy trajectory.

Interest rate futures markets priced in about a 90% chance that the Fed would raise its benchmark rate by 0.25 percentage points at the December FOMC meeting. Expectations that it would raise rates twice by 0.25 percentage points each by March next year also held steady.

Meanwhile, the Fed kept its benchmark interest rate unchanged at 3.75%-4.00% on Oct. 28. However, Fed Governor Lisa Cook and Beth Hammack, president of the Federal Reserve Bank of Cleveland, voted against the decision. The Fed had previously raised its benchmark rate at the September FOMC meeting for the first time in three years.

Regarding inflation, the Fed retained its previous assessment that "inflation remains elevated," and its assessment of employment was also unchanged from September. However, it upgraded its assessment of the U.S. economy. Bloomberg reported that markets took the Fed's upgraded economic assessment and the two dissenting votes in favor of a rate hike as hawkish signals.

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