U.S., French Bond Yields Rise Ahead of Fed, ECB Decisions -- 2nd Update

By Emese Bartha and Paulo Trevisani

Government bond yields rose slightly Tuesday as investors waited for key central bank decisions.

The Federal Reserve and the European Central Bank will announce interest-rate decisions on Wednesday and Thursday, respectively. Both institutions are expected to keep their policy rates on hold, although markets price in approximately three rate hikes for both over the next 12 months, according to LSEG.

The two-year Treasury yield was around 4.733% and the 10-year at 4.988%, both off intraday lows and near Monday levels.

Yields took a boost from higher-than-expected September durable goods orders, which increased 1.8%, according to the Commerce Department. The Conference Board Consumer Confidence Index for October was also better than forecast, at 91.7.

Meanwhile, an auction of five-year Treasury notes cleared at a lower yield than last month, as demand for U.S. government debt recovers from the turmoil of past weeks.

The Treasury continued to buy back its long-term debt, as planned. On Tuesday, it bought $6 billion in 20- and 30-year bonds. Yields fell slightly following the buyback.

For Wednesday's meeting, markets assigned a 91% probability to the Fed leaving the fed funds target rate range at 3.75%-4%, while a 25-basis-point hike is expected in December, according to LSEG data.

"Data since the last meeting has been in line with the narrative that the labor market looks fine and inflation remains too high for comfort," said Kish Pathak, fixed-income research analyst, and Erik Weisman, chief economist and portfolio manager at MFS Investment Management, in a note. "At the same time, [Fed Chairman Kevin] Warsh's preference has been to focus on trends," they said.

The nature of risks facing the economy also argues for waiting. For example, pipeline inflationary pressures will decline if there is some resolution to the Iran war and energy prices descend, they said.

Pimco economist Tiffany Wilding expects the Fed to hold the policy rate unchanged while keeping a clear tightening bias.

The Fed won't release new economic projections this month. Wilding said her focus at the upcoming meeting will be on how Warsh will frame the expected decision to hold rates; whether the majority of policymakers still characterize the September move as a risk-management adjustment; and how many officials dissent in favor of a hike.

"We see both the September hike and the overall rate path outlook as a recalibration, with one or two more hikes still to come that would effectively reverse last year's cuts," Wilding said.

Russell Investments expects a "hawkish hold" in October, where the Fed leaves interest rates unchanged but signals that future interest-rate hikes are likely, said global investment strategist Paul Eitelman, who expects one more hike at the end of the year.

Growth has been solid, supported by strong earnings, the AI build-out and resilient consumer spending. Meanwhile, price pressures have picked up, he said, going against Warsh's previously stated intention that underlying inflation should be moving toward the Fed's target "clearly and at sufficient speed."

In Europe, the 10-year German Bund yield fell 1.5 basis points to 3.343%, while the 10-year French OAT yield increased 3.9 basis points to 4.955%. Yields on Belgian OLOs and Italian BTPs edged higher. Recent selloffs in Europe focused on French bonds due to investor concerns over France's capacity to cut the budget deficit to 5% of gross domestic product, as planned, in 2027. Italy and Belgium also face significant budget and public debt challenges.

Write to Emese Bartha at emese.bartha@wsj.com and to Paulo Trevisani at paulo.trevisani@wsj.com

(END) Dow Jones Newswires

October 27, 2026 14:45 ET (18:45 GMT)