Will the Fed drop any hints on rate rises?

Despite this week's rally in US Treasuries, investors fear the recent global bond sell-off is far from over, with traders looking to the Federal Reserve's policy meeting and press conference on Wednesday for clues about the path of interest rates.

Traders in futures markets are pricing just a 9 per cent chance of a rate rise at the October meeting but anticipate between two and three quarter-point rises by the end of 2027, according to LSEG data.

Although US inflation came in higher than expected in September, many investors believe raising interest rates would do little to curb price pressures driven by soaring energy costs.

"We don't think they're going to raise rates," said Rob Waldner, chief investment officer at Invesco Fixed Income.

"There's no real inflation problem. There's a price problem in commodities and oil, but raising Fed rates doesn't solve the Iran war. It doesn't create more oil. It doesn't solve the diesel problem with refineries," he added.

The lack of forward guidance from new Fed chair Kevin Warsh is also expected to fuel volatility in the Treasury market, as investors struggle to gauge the central bank's next moves. Meanwhile, concerns over US government spending have kept longer-term borrowing costs elevated.

"We've introduced more risk premium and more volatility to the market," Waldner said. "We think the yield curve will steepen, and you'll probably get more risk premium on the long end of the curve." Michelle Chan

How close is the ECB to taking action on France?

The European Central Bank's October decision on interest rates is the part that is least in doubt before Thursday's meeting of the governing council.

Traders and analysts take it almost for granted that policymakers will leave the deposit rate unchanged at 2.5 per cent after raising it by a quarter point in June and again in September. LSEG data shows that markets are pricing just a 9 per cent probability of a rate rise next week.

Harder to predict will be any indication of the ECB's view on the situation in France, where 10-year government bond yields have risen above 5 per cent, the highest in more than two decades and some 1.7 percentage points above Germany's.

ECB watchers are pondering two questions. Will the rise in market rates delay further rises in policy rates, given that inflation is still on an upward trajectory? And how close is the ECB to buying French bonds to calm down the turmoil?

Traders on swaps markets have dialled down their bets on another quarter-point interest rate move this year, which was fully priced earlier this month, to about a 66 per cent chance.