- The 2-year U.S. Treasury yield hit 4.744% on Friday, its highest intraday level since July 2024, as investors priced growing odds of another Fed increase after this week's hike.
- Wednesday's rate increase came with comments from Fed Chair Kevin Warsh that market participants read as signaling further hikes remain possible; CME FedWatch put October hike probability at 58%, up from 55% on Thursday.
- The 10-year yield traded at 4.998%, and the 2s10s curve flattened to its smallest gap since March 2025 on Thursday before recovering slightly on Friday.
- Ahead of the decision, the 10-year held above 5% for the first time since 2007, with markets pricing roughly a 92.5% chance of a quarter-point hike that would put the Fed funds upper bound at 4.0%.
- The earlier yield spike was fueled by crude oil crossing above $105 a barrel on the Iran conflict and restricted Strait of Hormuz shipping, plus a hotter-than-expected August CPI that kept annual inflation well above the Fed's 2% target.
Quotes
“After all, he promised to follow the financial markets' lead. The 2-year and 10-year yields are clearly calling for a rate hike.”