U.S. short-term bond yields fell further as the market fully digested the possibility of a Federal Reserve rate cut in September

Driven by weak employment data in August, swap contracts fully priced in a 25 basis point rate cut by the Federal Reserve on September 17. U.S. Treasury bonds continued to rise, and the yield curve steepened. The OIS contracts linked to the Federal Reserve meeting priced in a rate cut of about 25 basis points, while it was around 23 basis points at Thursday's close. The market has priced in a total rate cut of 67 basis points for the remaining three meetings this year, compared to a previous expectation of 59 basis points. The yield on the U.S. two-year Treasury fell by more than 10 basis points to 3.48%, with the 2s10s and 5s30s spreads still close to their widest levels during the day, expanding by 2 basis points and 4 basis points, respectively