The 2-Year US Treasury yield has dropped from almost 3% back in November to 2.16% now. This includes a significant U-turn in the Federal Reserve’s monetary policy, shifting from a clear tightening bias to a more dovish stance. But at its current level and with the Fed target rate currently at 2.50%, the short-term US Treasury yield reflects that markets are now pricing in rate cuts.
The implied probability of a rate cut by December this year is up to 77%. While the Fed tends to lower policy rates after a policy pause, the room for dovish surprises seems limited.
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