US 2Y notes draw 3.641% vs 3.656% pre-sale when-issued yield

US 2Y notes draw 3.641% vs 3.656% pre-sale when-issued yield

The U.S. Treasury yield curve steepened on Tuesday, July 2, 2025, as concerns over the Federal Reserve's independence and potential policy changes by the central bank gained traction. The steepening yield curve, which measures the difference between long-term and short-term interest rates, reflects growing uncertainty among investors [1].

The yield curve steepened as U.S. President Donald Trump attempted to fire Federal Reserve Governor Lisa Cook, raising concerns about the Fed's independence and the potential for a more dovish policy stance. Cook denied Trump's authority to fire her, stating she will not resign [1]. This political interference has sparked fears that the Fed may lower interest rates more than previously anticipated, potentially leading to higher inflation and reduced foreign demand for U.S. debt.

The 2-year note (US2YT=RR) yield, which typically moves in line with interest rate expectations, fell by 2.4 basis points to 3.706% on Tuesday, while the yield on benchmark U.S. 10-year notes (US10Y) rose by 1.2 basis points to 4.287%. The yield curve between two-year and 10-year notes (US2US10=TWEB) reached its steepest level since July 16, at 58 basis points [1].

Investors are now betting that the Fed will cut rates at its September 16-17 meeting, following more dovish commentary from Fed Chair Jerome Powell. However, the jobs and inflation data for August, due before the September meeting, may influence the Fed's decision. Zachary Griffiths, head of investment-grade and macro strategy at CreditSights, noted that the labor market appears weaker than in September 2024 when the Fed cut rates by 50 basis points [1].

Meanwhile, the Treasury Department announced plans to sell $69 billion in two-year notes on Tuesday, the first of a $183 billion sale of short- and intermediate-dated supply this week. The Treasury will also auction $70 billion in five-year notes on Wednesday and $44 billion in seven-year notes on Thursday [1].

US 2-year notes (US2YT=RR) saw a pre-sale yield of 3.641% on Tuesday, July 2, 2025, compared to the 3.656% yield before the sale. This slight decrease in yield reflects market expectations of a potential rate cut by the Fed, as well as the recent political turmoil surrounding the central bank [2].

In summary, the steepening yield curve and the pre-sale yield drop in US 2-year notes indicate growing uncertainty and expectations of potential policy changes by the Federal Reserve. Investors should closely monitor the upcoming jobs and inflation data, as well as the Fed's September meeting, for further insights into the central bank's policy direction.

References:
[1] Reuters. (2025). "US10Y: Yield curve steepens as Trump attempts to fire Fed's Cook." Retrieved from https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3UI0GO:0-yield-curve-steepens-as-trump-attempts-to-fire-fed-s-cook/
[2] CNBC. (2025). "US2Y: Latest on U.S. 2 Year Treasury." Retrieved from https://www.cnbc.com/quotes/US2Y