The 2-year US Treasury yield fell 50BP in a few days, and the market is heavily betting that the Fed will launch a rescue mode.

On August 5th, Jinshi Data reported that bond traders are betting that the US economy is on the brink of deterioration and the Federal Reserve will need to start a large-scale loosening of monetary policy to avoid an economic recession. Previous concerns about high inflation have basically disappeared, quickly giving way to new concerns that the economy will slow down unless the Central Bank starts lowering the interest rate from its 20-year high. This is driving the bond market to experience one of the strongest rallies since the banking crisis in March 2023. The rally is so strong that the yield on 2-year US Treasury bonds, which is sensitive to policy changes, fell 50 basis points last week to less than 3.9%. Since the global financial crisis and the bursting of the Internet bubble, this yield has not been much lower than the current benchmark interest rate of the Federal Reserve (currently around 5.3%).