According to a report from BMO Capital Markets, U.S. Treasury yields have been trading within a narrow range, with the spread between the Bollinger Bands narrowing significantly from 80 basis points to 24 basis points since late September. This consolidation suggests that a breakout could be imminent as investors await the Federal Reserve's decision on interest rates on October 28.
The 2-year Treasury yield, which is closely tied to Fed policy expectations, has fluctuated between 4.70% and 4.82% throughout October, indicating limited movement but a wider trading range of 27 basis points. The average daily trading range has reached 10 basis points, the highest since March.
BMO anticipates that the Fed will maintain current rates in October but may increase them by 25 basis points in December. However, there is a cautionary note that the market may be overly confident in a December rate hike, which is currently priced at a 90% probability, suggesting that new economic data could shift these expectations