Traders awaited signals on whether the US central bank will offer an insurance rate-cut to combat risks from ongoing trade tensions or is prepared to lower borrowing costs a number of times in anticipation of an economic downturn.

"The market is treading water until we get clarification from the Fed on what it's going to do," said Sean Simko, head of global fixed income management at SEI Investments Co.

US interest rates futures suggested traders are fully positioned for a rate cut on Wednesday with an expected 77% chance of a quarter-point decrease and a 23% probability of a half-point reduction, according to CME Group's FedWatch program.

Federal funds contracts implied traders expect at least one more quarter-point cut by year-end if the Fed lowers rates on Wednesday.

The Fed will release its rate decision at 2 p.m. (1800 GMT) on Wednesday, followed by a press conference with Fed Chairman Jerome Powell half an hour later.

At 9:18 a.m. (1318 GMT), the yield on benchmark 10-year government notes was down 0.1 basis point at 2.053%.

The benchmark 10-year yield has risen over 5 basis points this month after hitting 1.939% on July 3, which was its lowest level since November 2016.

On the data front, the Commerce Department said US consumer spending rose 0.3% in June, matching analyst forecasts and allaying some worries about a sharp deceleration in economic growth.

While core consumer prices grew last month, the year-over-year increase as measured by the core rate of personal consumer expenditure remained subdued at 1.6%, below the Fed's 2% goal.

"The goal is about generating that inflation pressure," Simko said of possible rate-cuts from the Fed.