US Treasuries Under Pressure Ahead of FOMC Decision as Term Premium Faces Repricing Risk

Long-dated U.S. Treasuries are looking fragile ahead of this week's Federal Reserve rate decision, with the 10-year term premium already below its level at the start of the year. According to Sina Finance, oil prices are currently the key driver of Treasury yield moves in the short term, while widening fiscal deficits and intensifying capital competition suggest any rebound in long bonds may be short-lived. Markets have effectively pushed the Federal Reserve into a rate hike this week, lifting the probability of a Wednesday policy meeting increase to above 90%. According to Sina Finance, the focus has shifted from whether the Fed will hike to how long the tightening cycle will last, with pricing leaning toward at least one more hike before year-end. Rising energy prices and a large supply of U.S. Treasuries indicate that bonds across maturities may struggle to find relief in the near term. According to Sina Finance, the 10-year yield has just touched its highest level since 2007. On the corporate side, even if the pace of AI development slows, equities would likely feel the impact long before Treasuries get support. According to Sina Finance, as hyperscale data center operators increasingly use debt markets to finance AI buildouts and long-term supply agreements limit a rapid pullback in investment, heavy bond issuance will keep capital tight. In the absence of a clear catalyst for oil prices to keep falling, expanding fiscal deficits and continued corporate borrowing could leave term premium room to reprice higher and keep the 10-year Treasury yield more firmly above 5.0%.