The yield on 2-year U.S. Treasury bonds has fallen by 50 basis points in recent days, leading the market to heavily bet that the Federal Reserve will initiate a rescue mode

News on August 5th, bond traders are betting that the U.S. economy is on the verge of deterioration, and the Federal Reserve will need to start significantly easing monetary policy to avoid economic recession. Previous concerns about high inflation have essentially disappeared, quickly giving way to new worries that unless the central bank starts lowering interest rates from over a 20-year high point, the economy will stall. This is driving one of the strongest rallies in the bond market since fears of a banking crisis erupted in March 2023. The rally is so strong that yields on policy-sensitive 2-year U.S. Treasury bonds fell by 50 basis points last week to less than 3.9%. Since the global financial crisis and dot-com bubble burst, this yield has not been much lower than the Fed's benchmark rate (currently around 5.3%).