Two-year yields surged to 4.24% as traders price in a potential Fed rate hike at the July FOMC meeting.
US two-year Treasury yields climbed to 4.24% overnight, reaching their highest level since February 2025. The move reflects growing market expectations of a Federal Reserve rate hike, despite three cuts last year that lowered the fed funds rate to 3.50-3.75%.
Investors are increasingly focused on the July 29 FOMC meeting, with futures pricing in over 8.7 basis points of hikes, implying a roughly one-in-three chance of tightening. Tuesday’s CPI data and Fed commentary could shift these odds, with core inflation expected to rise 0.2% month-over-month and 2.8% year-over-year.
Analysts suggest the recent yield spike stems from uncertainty around Fed guidance, particularly after recent hawkish signals. Rising fuel prices and geopolitical tensions in Iran may also pressure inflation expectations, complicating the Fed’s policy path.