US treasury yields dip as traders await Fed's rate decision due on Wed

US Treasury yields dipped on Monday as investors waited for the Federal Reserve's interest rate decision due on Wednesday, when the US central bank is expected to cut rates by 25 basis points and signal that it will pause its policy easing cycle. 

The Fed is expected to say that it will be in no rush to make further cuts as inflation improves but remains above its 2 per cent annual target, while the labor market also remains relatively strong. 

"Some of the Fed speak has reflected that maybe FOMC members are thinking about slowing the pace of cuts and so we'll probably see that reflected in some of the communication on Wednesday," said Michael Lorizio, head of US rates trading at Manulife Investment Management. 

Fed Chair Jerome Powell has said the US central bank will continue to rely on the economic data when making its rate decisions.

Some analysts expect the possibility of new price pressures if the incoming Trump administration introduces new tariffs could also keep the Fed wary of cutting rates too far, too fast. 

Fed policymakers are due to update their economic projections and interest-rate outlook, known as the "dot plot," on Wednesday, which could show that they have lifted their estimate on how far they will cut rates. 

Benchmark 10-year note yields were last down 2.4 basis points at 4.375 per cent. 

Two-year note yields, which are highly sensitive to Fed interest-rate policy, fell 1.5 basis points to 4.226 per cent. 

The yield curve between two- and 10-year notes flattened by less than a basis point to 14.7 basis points. 

Economic data this week will be watched for any clues on Fed policy, though this week's key inflation release on Friday will be too late to influence the meeting. 

The Personal Consumption Expenditures Price Index, the Fed's preferred inflation measure, is expected to show that headline and core prices rose by 0.2 per cent each in November, for an annual gain of 2.5 per cent and 2.9 per cent, respectively.

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Retail sales data for November is also due on Tuesday.   

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