US 2-Year Yields Hit Highest Level Since February 2025
Two-year Treasury yields climbed to 4.24%, reflecting market anxiety over a possible Fed rate hike at the July 29 FOMC meeting.
Two-year Treasury yields surged to 4.24% overnight — their highest point since February 2025 — as bond markets push back against the Federal Reserve's three rate cuts from last year, with the Fed funds target still parked at 3.50-3.75%. The move signals that investors are not yet convinced the Fed's easing cycle is sustainable, and are instead pricing in the possibility of a policy reversal.
At the center of the tension is the July 29 FOMC meeting, where futures markets are currently assigning roughly a one-in-three chance of a rate hike, with more than 8 basis points of tightening already baked in. BMO's head of US rates strategy, Ian Lyngen, ties the pressure in the 2-year sector directly to Fed Chair Warsh's reluctance to offer forward guidance — a deliberate ambiguity that has left traders scrambling to read the signals themselves.
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Tuesday's CPI report looms as a critical inflection point. Consensus expectations call for core inflation to rise 0.2% month-over-month and 2.8% year-over-year, while headline CPI is forecast to ease to 3.8% from 4.2%, aided by declining fuel prices. Lyngen believes those relatively benign numbers, combined with Warsh's restrained communication style, will likely push rate-hike probabilities lower rather than higher heading into the meeting.
Wild cards remain in play, however. A renewed US engagement with Iran threatens to reverse recent oil price relief, and tight refining markets have already kept fuel costs elevated even as crude has pulled back. A dramatic CPI upside surprise, Lyngen acknowledges, could force the FOMC's hand — though he remains skeptical the Fed under Warsh has fundamentally rewired its reaction function so quickly, pointing to FOMC Minutes that still emphasize patience.
Technically, the 2-year yield is sitting at the edge of a potential breakout. A sustained move higher could put the 2025 peak of 4.40% squarely in the crosshairs. Continue reading at Forexlive.
