Two-Year Yield Hits 4.24%, Highest Since February 2025

The Fed cut rates three times in the past year. Two-year borrowing rates are not cooperating.

The two-year note yield touched 4.24% overnight, the highest since February 2025. The Fed lowered its funds rate to a range of 3.50-3.75% in September, October and December of last year. It has held there since.

Ian Lyngen, head of US rates strategy at BMO, said the market is wary of a July surprise given Kevin Warsh's unwillingness to provide guidance. Lyngen also thinks the 8.7 basis points priced into Fed funds is high.

The CPI report due Tuesday is expected to show core inflation rising 0.2% month over month and 2.8% year over year. Headline CPI is forecast to decline to 3.8% from 4.2% annually on falling fuel prices.

The latest re-engagement with Iran could unwind hopes of a retreat in oil prices in the months ahead. Tight refining markets have kept fuel prices high despite the drop in crude oil.

Technically, the yield sits right on the edge of a breakout. A challenge of the 2025 high of 4.40% is in play.