Two-year yield at highest since 2024 after Fed hikes rates 

NEW YORK - US Treasury yields were mostly higher on Wednesday, moving off earlier lows after the Federal Reserve raised interest rates and flagged further increases in borrowing costs in the coming months to control inflation.

Two-year Treasury yields hit 4.744%, their highest level since July 2024.

The decision on the rate increase, which was the Fed's first in over three years, was unanimous.

New policy projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year. Fed chief Kevin Warsh did not submit a rate projection.

In his comments, Warsh said the US economy has strengthened since Fed policymakers last met in June.

Yields were lower ahead of the Fed announcement.

"I'm looking at the two-year here, though, and ... it's coming back up higher here. So, maybe it helps the long end a little bit, but the front end's still worried about another hike later this year, and then who knows what for 2027," said JP Powers, chief investment officer at RWA Wealth Partners in Boston.

Market bets on a rate hike at the Fed's next meeting in late October held at roughly 50% from 54% prior to the hike, according to CME FedWatch.

Worries about inflation, which have been driven in part by spikes in oil prices tied to the US-Israeli conflict with Iran, pushed the 10-year yield above 5.00% on Monday for the first time since 2023, and the benchmark yield hit its highest level on Tuesday since July 2007.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, was last up 6.2 basis points at 4.738%.

The yield on the benchmark US 10-year Treasury note rose 1 basis point to 5.006%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 27.9 basis points, the flattest since June 30.

The day's economic data reinforced the view that the US consumer remains resilient.

Data showed US retail sales rebounded more than expected in August and that US import prices surged last month.

Boosting retail sales were purchases of motor vehicles and supplies for the new school year. Commerce Department data showed retail sales jumped 1.2% last month after a revised 0.5% drop in July, which was the first decline in nine months. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, rebounding 0.8% after a previously reported 0.6% drop in July.

At the same time, Labor Department data showed that import prices rebounded 0.7% last month after declining by 0.3% for two straight months. Economists polled by Reuters had forecast import prices, which exclude tariffs, would rise 0.4%.

The yield on the 30-year bond fell 1.3 basis points to 5.35%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.361% after closing at 2.417% on Tuesday.

The 10-year TIPS breakeven rate was last at 2.337%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Caroline Valetkevitch; Additional reporting by Chuck Mikolajczak 
Editing by Rod Nickel, Nick Zieminski and Andrea Ricci )