Treasury yields were sharply lower Tuesday morning, following a U.S. holiday weekend, as fed funds futures traders priced in a high likelihood that the Federal Reserve may not raise interest rates again in this cycle.
On Monday, Fed Vice Chair Philip Jefferson said the central bank could “proceed carefully” following the recent surge in Treasury yields to 16-year highs, and Dallas Fed President Lorie Logan said the surge in long-term yields may mean less need for additional rate increases by policy makers. For now, fed funds futures traders are pricing in an 86.4% chance of a pause by the Fed on Nov. 1, according to the CME FedWatch Tool. They also see a 72.4% likelihood of no action by December, which would leave the Fed’s main interest-rate target at a 22-year high between 5.25%-5.5%.