Investors are shifting capital into short-term US Treasury notes, specifically two-year bonds, following the Federal Reserve's recent policy decisions. This move reflects market confidence in the strategy of Fed Chair Kevin Warsh to curb inflation.
On September 16, the Federal Reserve increased the federal funds target range to 3.75–4 percent. This action, the first rate hike since July 2023, caused two-year Treasury yields to rise to nearly 4.75 percent.
Futures markets currently anticipate approximately 80 basis points of additional tightening over the coming year. This outlook follows a hawkish address delivered by Kevin Warsh at the Jackson Hole symposium in August.
August data showed the Consumer Price Index increased 3.4 percent year-over-year, while core CPI rose 2.4 percent annually. The month-over-month headline inflation figure reached 0.4 percent.
Treasury Secretary Scott Bessent introduced expanded buyback operations for 10- to 30-year securities, including a September operation of up to $6 billion. Despite these measures to improve liquidity, yields on long-term bonds continue to climb.
