US Treasury bonds extended their losses on Wednesday without a clear catalyst, reflecting the market's growing anticipation of Federal Reserve interest rate hikes. Yields on US 2-year to 5-year Treasuries climbed to their highest levels of the year, with the 10-year yield coming within less than 2 basis points of its 2026 high set in mid-May. As of 3 p.m. New York time, Treasury futures volume was approximately 65% to 70% of the 20-day average.

With no major US economic data releases and Federal Reserve policymakers entering their customary quiet period ahead of the July 29th policy decision, traders continued to price in expectations for the Fed to implement at least two 25-basis-point rate hikes by mid-2027.

For next week's policy meeting, the market is pricing in roughly 8 basis points of tightening, equivalent to about one-third of a standard 25-basis-point hike, an increase of approximately 2 basis points from last Thursday.

However, there was no clear driver for this latest adjustment in expectations. Although crude oil prices settled about 3% higher, they had already peaked at the start of the US trading session and subsequently retreated broadly as yields climbed.

The US Treasury's reopening auction of $13 billion in 20-year notes produced a high yield of 5.163%, the second-highest level for that tenor since its reintroduction in 2020. The auction yield was above the 5.158% yield seen at the 1 p.m. New York time bidding deadline.

As of 3:49 p.m. ET, the 2-year Treasury yield was at 4.3042%, the 5-year yield at 4.4107%, the 10-year yield at 4.6606%, and the 30-year yield at 5.1501%. The yield spread between 2-year and 10-year notes was 35.43 basis points, and the spread between 5-year and 30-year notes was 73.75 basis points.