US Treasury prices gained on Tuesday a day before the Federal Reserve's highly anticipated interest rate decision from its two-day meeting is announced. The Fed is expected to hike interest rates for the fourth time this year as US growth continues to look solid.
Investors, who are concerned about slowing international growth, volatile stock markets and the possibility that US economic strength will weaken, will focus on any indications from the Fed that it may be close to pausing its tightening cycle because of these issues.
"The market's thinking more and more the Fed may be just about done. It's not quite there, but it's not got a lot yet to go," said Michael Schumacher, head of rate strategy at Wells Fargo in New York.
Comments by Fed Chairman Jerome Powell in late November that the key interest rate was "just below" neutral, a level that neither brakes nor boosts the economy, increased speculation that the US central bank may pause hikes sooner than previously expected.
Fed Vice Chair Richard Clarida had made similarly dovish comments less than two weeks earlier.
Investors on Wednesday will look for any modification in the Fed's language indicating that it may take a meeting-by-meeting approach to raising rates, as opposed to indicating that a predetermined number of rate hikes is still likely, Schumacher said.
Benchmark 10-year notes gained 9/32 in price to yield 2.826 percent, after earlier dropping to 2.821 percent, the lowest level since August 27. The yields have fallen from a seven-year high of 3.261 percent on October 9.