US Treasury two-year yield falls further, down 6.2 bps at 3.528%

US Treasury two-year yield falls further, down 6.2 bps at 3.528%

The US Treasury two-year yield has fallen further, dropping by 6.2 basis points to 3.528%, according to data released on September 2, 2025. This decline is part of a broader trend that has seen yields fluctuate within a relatively narrow range over the past several months.

The recent fall in the two-year yield comes amidst a backdrop of stabilizing interest rates and a generally positive outlook for equity markets. The S&P 500 has been advancing despite high interest rates, reaching new all-time highs by late August. This trend reflects the steady rates and stable inflation environment, which have been beneficial for stock performance [1].

The Federal Reserve's interest rate policy has been a key factor in shaping market expectations. After reducing the federal funds target rate by 1% in late 2024, the Fed has maintained the rate at 4.25% to 4.50% so far in 2025. Investors anticipate two 0.25% rate cuts in the final months of 2025, along with multiple additional cuts in 2026 [1].

The fall in the two-year yield has implications for bond markets and equity markets. Higher borrowing costs affect business and consumer spending, which can impact corporate profitability. However, the current stable inflation environment and higher corporate earnings have supported equities, leading to the S&P 500's recent performance [1].

For investors, the key takeaway is that while interest rates remain elevated compared to historical standards, they have settled into a range that is less impactful on equity markets. The S&P 500's resilience and the Fed's expected rate cuts suggest a positive outlook for the remainder of the year.

References:
[1] https://www.usbank.com/investing/financial-perspectives/market-news/how-do-rising-interest-rates-affect-the-stock-market.html