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United States 3 Month Bill Yield vs US Government Bond 2Y: why the prices moved differently

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United States 3 Month Bill Yield (US-3M.GB)

US Government Bond 2Y (US-2Y.GB)

Latest
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Strong Data and Oil Keep 2-Year Yield Near 4.8%, Fed Hold Bets Grow

  • Strong economic data pushes 2-year yield to multi-decade highs Durable goods orders beat forecasts, with business spending surging, while the 2-year yield hit 4.906% and the 30-year reached a 24-year high. Strong data supports the case for the Fed to keep rates high, pushing the 2-year yield up.

    This point explains how robust economic data directly lifted the 2-year yield to multi-decade highs.

  • Cooler PCE inflation pulls 2-year yield down to 4.827% August PCE inflation came in below expectations, easing fears of more Fed hikes. Investors now see a 62.9% chance the Fed holds rates in October, up from 49.1%. The 2-year yield fell to 4.827% as lower expected short-term rates push bond prices up.

    This point shows how softer inflation data reduced rate-hike odds and pulled the 2-year yield lower.

  • Oil slump and weak services data boost Fed hold bets, 2-year yield falls to 4.787% A sharp drop in oil prices and a weaker ISM services index raised the odds of a Fed hold in October to 78.4%, up from 29.1% a week earlier. The 2-year yield fell to 4.787% as investors scaled back rate-hike expectations.

    This point highlights how falling oil and soft services data lowered rate-hike expectations, pulling the 2-year yield down.

  • Oil supply fears and Fed minutes revive hike bets, 2-year yield back to 4.818% Concerns over oil supply from the Iran conflict pushed oil higher, reviving inflation worries. The Fed's September minutes showed officials divided, but markets still price an 85% chance of a December hike. The 2-year yield rose to 4.818% as rate-hike bets grew.

    This point explains how geopolitical oil supply fears and Fed minutes renewed rate-hike expectations, lifting the 2-year yield.

Q3 2026
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US 2-Year Yield Hits 2025 High on Fed Hikes, Fiscal Worries

  • Fed rate-hike fears and actual hike Under Chair Warsh, the Fed raised rates in September and signaled no cuts until 2028, pushing the 2-year yield to its highest since January 2025. Strong August payrolls and hot PPI added to the case for higher rates.

    This was the main driver of the yield's rise to a new high.

  • Fiscal worries and heavy bill issuance Federal debt above $40 trillion and heavy issuance of short-term bills increased the supply of government debt, pushing yields higher as investors demanded more compensation to hold it.

    This added upward pressure on yields independently of Fed policy.

  • Easing Middle East tensions and falling oil Easing Middle East tensions and falling oil prices reduced inflation fears, while Treasury buybacks and cooler PCE data also helped pull yields back from their peak.

    These factors provided a counterweight that prevented yields from rising even further.

  • Weak jobs report vs. rising oil and strong PMI A weak September jobs report (29,000 payrolls, 4.2% unemployment) pulled yields lower, but rising oil and a strong PMI kept inflation fears alive, leaving yields elevated around 4.73%.

    This shows the tug-of-war that left yields high but off their peak.

September 2026
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Fed hike and hot inflation spike yields, then weak data pull back

  • Fed hike and hawkish dot plot The Fed raised rates for the first time since 2023 and signaled no cuts until 2028, pushing the 2-year yield to 4.74% as markets repriced higher-for-longer policy.

    This was the primary force driving yields sharply higher in early September.

  • Hot PPI and oil above $100 Hot producer price inflation and oil prices above $100 reinforced fears that inflation remains sticky, adding upward pressure on yields and keeping the Fed hawkish.

    Inflation data and energy costs directly influence rate expectations and bond yields.

  • Cooler PCE and weak jobs report Cooler PCE inflation and a weak jobs report (29,000 payrolls, 4.2% unemployment) slashed rate-hike odds, pulling the 2-year yield down to around 4.73%.

    This late-September reversal was a major new development that eased rate expectations.

  • Rising oil and strong PMI limit decline Rising oil prices and a strong PMI kept inflation fears alive, limiting the decline in yields and leaving them elevated but off their highs.

    This counterweight prevented a larger drop in yields, showing persistent inflation risks.

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Cooling Inflation and Weak Jobs Data Pull 2-Year Yield Down from Highs

  • Cooler PCE Inflation Raises Odds Fed Holds Rates August PCE inflation came in below expectations (3.4% vs 3.7% forecast), easing fears of more Fed hikes. Investors now see a 62.9% chance the Fed holds rates in October, up from 49.1%. The 2-year yield fell to 4.827%, as lower expected short-term rates push bond prices up.

    This is a key new event that directly lowered the 2-year yield by changing Fed rate expectations.

  • Weak September Jobs Report Slashes Rate-Hike Bets September payrolls rose only 29,000, far below the 89,000 expected, and unemployment rose to 4.2%. Investors now price an 83.9% chance the Fed holds rates in October, up from 35.8% a week ago. The 2-year yield fell to 4.730%, as weaker jobs reduce pressure for higher rates.

    This is the latest major data point that significantly shifted Fed expectations and pushed the 2-year yield down.

  • Rising Oil and Strong PMI Keep Inflation Fears Alive Oil prices above $93 (WTI) and a 62-month high in the composite PMI (58.4) with rising price pressures kept inflation concerns elevated. This supported expectations of further Fed hikes, limiting the fall in the 2-year yield, which remained near 4.9% before the PCE data.

    This is a counterweight that prevented a larger drop in the 2-year yield, showing the forces pushing in the opposite direction.

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Fed Hikes Again, Signals More; 2-Year Yield Jumps to 4.74%

  • Fed's First Rate Hike in 3 Years Pushes 2-Year Yield to 4.74% The Fed raised its policy rate by 0.25% to 3.75–4.00%, the first hike since 2023, and signaled one more increase this year. The 2-year yield jumped to 4.74%, its highest since 2024, as bond prices fell. Higher short-term rates directly lift the 2-year yield.

    This is the main new event of the period and directly drives the 2-year yield higher.

  • Hawkish Dot Plot Shows Higher Rates for Longer The Fed's projections now see rates at 4.1% by end-2026, up from 3.8%, and no cuts until 2028. This 'higher for longer' message keeps upward pressure on the 2-year yield, as investors expect short-term rates to stay elevated.

    The dot plot revision is a key new signal that reinforces the upward trend in the 2-year yield.

  • Treasury Buyback Disappointment and Supply Worries Lift Yields The Treasury's expanded buyback was smaller than expected, and weak demand at the operation highlighted fiscal concerns. This added to selling pressure, pushing the 2-year yield to a two-year high before the Fed meeting.

    This new supply/demand imbalance contributed to the rise in the 2-year yield ahead of the Fed.

  • Hot PPI and Oil Prices Keep Inflation Fears Alive August PPI came in hotter than expected at 5.4%, and oil prices above $100 added to inflation worries. This reinforced expectations of a Fed hike, pushing the 2-year yield up 16 basis points to 4.59% before the meeting.

    Inflation data and oil prices are new drivers that increased rate-hike odds and lifted the 2-year yield.

August 2026
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Fed rate-hike fears push 2-year Treasury yield to 2025 high

  • Fed rate-hike expectations Fed Chair Warsh warned inflation remains at 3.7%, reviving rate-hike odds. Strong August payrolls (162,000 vs. 55,000 expected) then drove the 2-year yield to roughly 4.38–4.43%, its highest since January 2025, as markets priced a 60% chance of a September hike.

    This is the main new force that pushed yields up and bond prices down during the period.

  • Easing Middle East tensions and falling oil Easing Middle East tensions and falling oil prices briefly supported bonds, as lower energy costs can reduce inflation pressures and make fixed-income more attractive.

    This is a new counterweight that helped bond prices and limited the yield rise.

  • Treasury buybacks Treasury buybacks also provided temporary support for bonds, as the government buying back its own debt can help keep a lid on yields.

    This is another new factor that acted as a counterweight to the upward yield pressure.

  • Fiscal worries and heavy bill issuance Fiscal worries persist: federal debt above $40 trillion and heavy short-term bill issuance risk pushing short-term rates higher, which could keep upward pressure on the 2-year yield.

    This is a new ongoing risk that could continue to weigh on bond prices.

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Strong August Jobs Data Lifts 2-Year Yield to 2025 High on Rate-Hike Bets

  • Strong August Jobs Report Pushes 2-Year Yield to Highest Since January 2025 August payrolls rose 162,000, far above the 55,000 expected, and wages grew 3.1%. Traders now see a 60% chance of a September Fed rate hike, up from 49%. The 2-year yield jumped to about 4.38-4.43%, its highest since January 2025, so the bond's price fell.

    This is the period's biggest new force: hot jobs data directly raised rate-hike odds and drove the 2-year yield to a multi-month high.

  • Treasury Buybacks and Easing Middle East Tensions Briefly Support Bonds Early in the period, easing Middle East tensions and falling oil pulled the 2-year yield down to about 4.20%. The Treasury's expanded long-term buybacks also briefly pushed yields lower, but the effect faded within a day as inflation and debt worries returned.

    This is the real counterweight: forces that briefly pushed yields down before the jobs data reversed them.

  • Fiscal Worries and Heavy Short-Term Bill Supply Risk Pushing Short-Term Rates Higher Federal debt has topped $40 trillion, and funding the Treasury's buybacks means issuing more short-term bills. That extra supply can push short-term rates up, and markets speculate the Fed may have to buy bonds to prevent a spike, adding to upward pressure on the 2-year yield.

    It explains a structural supply-and-fiscal force that keeps upward pressure on short-term yields beyond the jobs report.

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Jobs Weakness Then Warsh's Inflation Warning Whiplash 2-Year Yields

  • Weak July Jobs Report Pulls 2-Year Yield Down A surprisingly weak July jobs report showed payrolls fell by 23,000, far below the expected 80,000 gain. That eased fears of a Fed rate hike, pushing the 2-year Treasury yield down about 7 basis points to roughly 4.18%. Lower yields mean the bond's price rose.

    This was the first major event of the period and directly drove the 2-year yield lower, answering what moved it.

  • Warsh's Jackson Hole Warning Lifts Rate-Hike Odds Fed Chair Warsh said the Fed 'will have work to do' if inflation doesn't clearly return to 2%, noting inflation is still 3.7%. Traders raised the chance of a September rate hike to about 50-56% from roughly 35-40%. The 2-year yield jumped to around 4.28-4.31%, a one-month high, as bond prices fell.

    This is the period's biggest new driver, reversing the earlier yield drop and pushing the 2-year yield sharply higher.

  • Markets Reprice for Possible Fed Hike, Not Cuts After Warsh's speech, markets moved to price in a possible rate hike rather than cuts. The 2-year yield rose 7-9 basis points, the dollar strengthened, and stocks and bitcoin fell. This confirms the shift in expectations that keeps upward pressure on the 2-year yield.

    It shows the broad market reaction that reinforces the higher-for-longer rate outlook driving the 2-year yield.