Two-year US Treasury yield drops to 1.5-month low of 3.787%.

Two-year US Treasury yield drops to 1.5-month low of 3.787%.

The two-year US Treasury yield has reached a 1.5-month low of 3.787%, according to data released on June 19, 2025. This drop in yield reflects a shift in market expectations following recent developments in the economic landscape.

Federal Reserve Chair Jerome Powell's testimony before the House Financial Services Committee on Tuesday provided key insights into the central bank's stance on interest rates and inflation. Powell declined to comment specifically on potential rate cuts at the Fed's next meeting in July but emphasized the importance of June and July inflation figures. He noted that the Fed is "perfectly open" to the idea that the pass-through of tariff hikes to inflation might be less than anticipated, which could influence monetary policy [1].

The market's response to Powell's testimony has been significant. Stocks stayed higher during the hearing, while interest-rate futures continued to reflect expectations for the Fed to resume rate cuts in September. The dollar and Treasury yields were lower, with the S&P 500 Index up 1.1% as of 1:14 p.m. in New York, and two-year Treasury yields down about 5 basis points, at 3.82% [1].

The drop in the two-year Treasury yield also coincides with a broader context of economic uncertainty, particularly regarding potential policy changes under the new administration. Former US Treasury Secretary Larry Summers has warned that President-elect Trump's economic agenda could lead to a significant increase in inflation if he fulfills his campaign promises. Summers, who served under the Clinton and Obama administrations, expressed shock at the potential impact of Trump's proposals, which include cutting taxes, increasing tariffs, and weakening the independence of the Federal Reserve [2].

Moreover, China's reduction of its US Treasury stockpiles to a 16-year low in April further adds to the market's volatility. China's holdings of US Treasuries dropped to US$757 billion, down from US$765.2 billion in March, as the escalating trade war with the US sparked concerns about the long-standing status of American government bonds as the world’s safest asset [3].

The combination of these factors has led to a decrease in the two-year Treasury yield, indicating a shift in investor sentiment. As the market awaits further clarity on economic policy and monetary decisions, the yield on US Treasuries will continue to be a crucial indicator of market expectations and economic conditions.

References:
[1] https://finance.yahoo.com/news/key-takeaways-powell-testimony-house-171936664.html
[2] https://www.moomoo.com/news/post/98567883/record-tr4cking-news-default
[3] https://www.scmp.com/economy/china-economy/article/3315093/china-cuts-us-treasury-stockpiles-16-year-low-amid-trumps-trade-war