Two-Year Treasury Yield Hits Lowest Point Since 2022 Amid Inflation Data Anticipation
1min read The yield on the two-year U.S. Treasury note has fallen to its lowest level since 2022, as investors keenly await forthcoming inflation data that could solidify market bets on a Federal Reserve rate cut this month.
The two-year Treasury yield slid by 5 basis points to reach 3.55%, marking its lowest level since September 2022. The inflation report, due later on Wednesday, is expected to show a year-over-year increase in the Consumer Price Index (CPI) of 2.5% for August, down from July's 2.9% rise.
Despite widespread market expectations for the Federal Reserve to begin lowering interest rates at its September 18 meeting, the critical question remains whether the Fed will cut rates by 50 basis points to bolster the economy. Traders currently estimate about a 20% probability of such an outcome.
According to Evelyne Gomez-Liechti, a strategist, "Clearly, the market wants to go long, but I believe we have rallied quite a lot. Unless today's CPI surprises to the downside, I expect some consolidation near current levels before the Fed meeting."
The impressive rebound in U.S. Treasuries this year can be attributed to increasing evidence that a softening labor market and cooling inflation will pave the way for looser monetary policy. Statements made by Jerome Powell in August at the Jackson Hole symposium have further buoyed these expectations. Powell indicated that the "time for rate cuts has come."
The two-year Treasury yield has dropped almost 1.5 percentage points from its April peak. Overall, the money market anticipates that the Federal Reserve will cut rates by more than 110 basis points by year-end and by 250 basis points over the next 12 months, potentially bringing the upper bound of the federal funds rate down to 3%.
Investors are also closely monitoring the impact of the first U.S. presidential debate between Harris and Trump on Tuesday, in which the candidates debated economic conditions and U.S.-China relations. So far, market reactions have been muted.
The yield on the highly rate-sensitive two-year U.S. Treasury note dropped to 3.546%, its lowest since September 2022, as market participants await data anticipated to show modest inflation growth for the past month.
Analysts expect the August report, due later on Wednesday, to reveal that the CPI has increased by 2.5% on a year-over-year basis, down from the previous month's 2.9% gain.