Treasury Market Pricing In Higher Odds For Rate Cuts
The Federal Reserve may continue to be patient before deciding on the next change in monetary policy, but the Treasury market isn’t waiting and has been rapidly adjusting to changing expectations for the economy that reflect forecasts of weaker growth, or worse.
The policy-sensitive 2-year Treasury yield, which is seen as a market proxy for rate expectations, has fallen in recent weeks and is now pricing in higher odds that the central bank will reduce its target rate. The 2-year yield traded at 3.94% yesterday (Mar. 11), close to the lowest level since October and well below the current 4.25%-to-4.50% Fed funds target range.