Interest rate cut expectations crush short sellers! Two-year U.S. Treasury yield is approaching a three-month low
The yield on U.S. short-term Treasury bonds is nearing a three-month low, reflecting the market's widespread expectation that the Federal Reserve will cut interest rates next month. The two-year Treasury yield hovered around 3.67% on Thursday, down nearly 30 basis points since the end of July, primarily due to weaker-than-expected non-farm payroll data. Market sentiment has significantly reversed, with the probability of a rate cut now exceeding 50%. Treasury Secretary Becerra supports a rate cut, suggesting a possible 50 basis point reduction in December. Deutsche Bank strategists indicate that the market's perception of the magnitude of rate cuts is changing, making a 25 basis point cut feasible
According to the Zhitong Finance APP, the yield on U.S. short-term government bonds is approaching its lowest point in over three months, reflecting traders' widespread expectations that the Federal Reserve will initiate interest rate cuts next month. As one of the most sensitive indicators to changes in monetary policy, the two-year Treasury yield hovered around 3.67% on Thursday, having fallen nearly 30 basis points since the end of July, with most of the decline occurring after the release of disappointing non-farm payroll data.
The core support for the market's strength lies in investors' expectations that Federal Reserve officials will implement the first interest rate cut of the year at the September meeting—this is a policy shift that U.S. President Trump has been continuously pressuring for. Upcoming economic data, such as the Producer Price Index and initial jobless claims, set to be released on Thursday, will provide further insights into the health of the U.S. economy.
At the same time, the yield on the ten-year Treasury has fallen to around 4.22%, down 15 basis points since late July, showing a mild downward trend on Thursday.
It can be seen that market sentiment has significantly reversed compared to two weeks ago—when the probability of a rate cut in September was still below 50%. This shift began after the release of a weak employment report, which further fueled Trump's political pressure on the Federal Reserve to lower financing costs.
Treasury Secretary Scott P. Bessenet joined the call for rate cuts on Wednesday, suggesting that a 50 basis point cut in December may be appropriate, and added that rates "should be lowered by 150 to 175 basis points."
Deutsche Bank macro strategist Henry Allen stated in an interview: "One of the strategies they are adopting is to change the market's perception of 'what level of rate cut is acceptable.' Compared to the significant cuts advocated by Bessenet and Trump, suddenly, a 25 basis point cut seems quite moderate and feasible."
