Short-Dated Treasuries Attract Investors as Yields Near 4.75% Amid Fed Tightening Expectations

Investors are increasingly viewing the drop in short-dated bond prices as a buying opportunity after the U.S. Treasury 2-year yield rose to around 4.75%.

Although futures markets have priced in 0.8 percentage point of additional tightening over the next year, some investors say much of that outlook is already priced into 2-year notes, leaving room for a rebound.

The U.S. Treasury plans to auction $69 billion of two-year notes on September 22 and $70 billion of five-year notes on September 23.

Fed Chair Kevin Warsh's comments signaling an aggressive stance on inflation have reinforced the view that expectations for additional tightening may be overdone, according to Bank of America strategists.