US 2-Year Treasury Yield Surges Amid Rising Rate Hike Odds

The US 2-year Treasury yield surged to 4.32-4.36% on August 28, rising by as much as 12.8 basis points in a single session.

This increase was driven by traders pricing in a roughly 60% probability of a Federal Reserve rate hike at the upcoming September FOMC meeting, up from 35% just one day earlier.

Speaking at the annual gathering of central bankers in Wyoming, Kevin Warsh made it clear that the Fed is not yet ready to declare victory on inflation. He stated that if inflation doesn't return to the 2% target quickly enough, the central bank will take necessary actions, reinforcing short-term interest rates as its primary policy weapon.

The yield curve itself tells the story, with shorter-term yields rising faster than their longer-term counterparts, flattening the curve in a pattern that typically reflects expectations of tighter monetary policy ahead.