US Treasury yields continue to rise, with traders betting on a nearly 60% probability of an interest rate hike this year.
2026-05-20 10:46:01
On Wednesday (May 20) during Asian trading hours, the yield on 10-year US Treasury bonds rose to around 4.682%, breaking through the May 2025 high of 4.62%; the yield on 30-year US Treasury bonds rose to 5.20%, setting a new record high since 2007.
The continued rise in U.S. Treasury yields has altered market expectations regarding the timing of the Federal Reserve's next rate hike. On prediction market platforms, traders see a 63% probability of a rate hike before July 2027, compared to a 43% probability this year. Rising inflation and a stronger-than-expected job market have dampened hopes for rate cuts—one of President Trump's core policy objectives.
Traders are currently betting on an 82% probability of an interest rate hike before July 2027, and a 58% probability of policy tightening by the end of 2026. The probability of a rate hike has jumped sharply in the past 24 hours due to persistently high US Treasury yields, heightened concerns about rising inflation, and the lack of any real decline in oil prices amid the unresolved US-Iran conflict.
Previously, traders considered the probability of an interest rate hike in the first half of 2027 to be only "50/50." This shift in probability comes as Kevin Warsh is sworn in as the new Federal Reserve Chairman on Friday, succeeding Jerome Powell.
Although Trump criticized Powell for not cutting rates fast enough and expressed hope that the new chairman would push for rate cuts when he nominated Warsh in late January, the probability of a rate cut has been declining for some time. A stronger-than-expected job market and persistently high inflation have led economists to become more pessimistic about the prospect of rate cuts.
At the last Federal Reserve meeting, several members of the Federal Open Market Committee made it clear that they had no interest in signaling future interest rate cuts.
On Tuesday, Trump released new signals regarding the Federal Reserve's policy stance, suggesting he would give incoming Fed Chairman Kevin Warsh some autonomy.
But what truly prompted investors to reassess the outlook was the continued rise in U.S. Treasury yields. On Tuesday, the 30-year Treasury yield climbed to its highest level since 2007. Ed Yardeni, head of research at Yardeni Research, said on Monday that the bond market may have more influence over monetary policy than incoming Chairman Walsh.
In a report on Tuesday, Wolfe Research's chief investment strategist, Chris Senek, said that the bond market's movements could force a resolution to the Middle East conflict, thereby easing inflationary pressures. "We believe the U.S. Treasury market has been signaling persistent inflation, and this week was the final straw."
Citigroup analysts say bond traders have set a new target of 5.5% for the 30-year Treasury yield, rendering the previously considered bottom-fishing level of 5% virtually meaningless. One analyst bluntly stated, "The market is underestimating the risk of the Fed raising rates starting this year." Analysts warn that core inflation remains stubborn, and the US economic growth outlook is more resilient than other developed economies, meaning the Fed is unlikely to cut rates in the short term. The biggest risk facing the global economy is the magnitude of the impact on global bond yields.
Societe Generale believes that US Treasury yields are showing signs of "getting out of control," which will be Warsh's first major test since taking office. Analysts emphasize that Warsh's real core task is to control inflation expectations. If market expectations get out of control, the Federal Reserve must shift its policy stance from accommodative to neutral.
In conclusion, the continued surge in US Treasury yields is reshaping expectations for the Federal Reserve's policy path. Although Trump nominated Warsh with hopes of interest rate cuts, persistent inflation, strong employment, and pressure from the bond market are continuously increasing the probability of a rate hike. The market is not only repricing the Fed's policy direction but also sending a signal to the White House through yields—to resolve the US-Iran conflict as soon as possible to alleviate inflationary pressures. For Warsh, who is about to take office, he may have to begin his term as Fed Chair with expectations of rate hikes rather than rate cuts, and the power of the bond market may become a significant constraint during his term.
The continued rise in U.S. Treasury yields has altered market expectations regarding the timing of the Federal Reserve's next rate hike. On prediction market platforms, traders see a 63% probability of a rate hike before July 2027, compared to a 43% probability this year. Rising inflation and a stronger-than-expected job market have dampened hopes for rate cuts—one of President Trump's core policy objectives.
The probability of an interest rate hike has jumped from "50/50" to "over 80%".
Traders are currently betting on an 82% probability of an interest rate hike before July 2027, and a 58% probability of policy tightening by the end of 2026. The probability of a rate hike has jumped sharply in the past 24 hours due to persistently high US Treasury yields, heightened concerns about rising inflation, and the lack of any real decline in oil prices amid the unresolved US-Iran conflict.
Previously, traders considered the probability of an interest rate hike in the first half of 2027 to be only "50/50." This shift in probability comes as Kevin Warsh is sworn in as the new Federal Reserve Chairman on Friday, succeeding Jerome Powell.
Hopes for a rate cut continue to fade, despite Trump's earlier hopes that Warsh would implement one.
Although Trump criticized Powell for not cutting rates fast enough and expressed hope that the new chairman would push for rate cuts when he nominated Warsh in late January, the probability of a rate cut has been declining for some time. A stronger-than-expected job market and persistently high inflation have led economists to become more pessimistic about the prospect of rate cuts.
At the last Federal Reserve meeting, several members of the Federal Open Market Committee made it clear that they had no interest in signaling future interest rate cuts.
On Tuesday, Trump released new signals regarding the Federal Reserve's policy stance, suggesting he would give incoming Fed Chairman Kevin Warsh some autonomy.
Does the bond market have more say than the Walsh Movement?
But what truly prompted investors to reassess the outlook was the continued rise in U.S. Treasury yields. On Tuesday, the 30-year Treasury yield climbed to its highest level since 2007. Ed Yardeni, head of research at Yardeni Research, said on Monday that the bond market may have more influence over monetary policy than incoming Chairman Walsh.
In a report on Tuesday, Wolfe Research's chief investment strategist, Chris Senek, said that the bond market's movements could force a resolution to the Middle East conflict, thereby easing inflationary pressures. "We believe the U.S. Treasury market has been signaling persistent inflation, and this week was the final straw."
Citigroup analysts say bond traders have set a new target of 5.5% for the 30-year Treasury yield, rendering the previously considered bottom-fishing level of 5% virtually meaningless. One analyst bluntly stated, "The market is underestimating the risk of the Fed raising rates starting this year." Analysts warn that core inflation remains stubborn, and the US economic growth outlook is more resilient than other developed economies, meaning the Fed is unlikely to cut rates in the short term. The biggest risk facing the global economy is the magnitude of the impact on global bond yields.
Societe Generale believes that US Treasury yields are showing signs of "getting out of control," which will be Warsh's first major test since taking office. Analysts emphasize that Warsh's real core task is to control inflation expectations. If market expectations get out of control, the Federal Reserve must shift its policy stance from accommodative to neutral.
Rising interest rate hike expectations are forcing a dual response from policymakers and geopolitical forces in the bond market.
In conclusion, the continued surge in US Treasury yields is reshaping expectations for the Federal Reserve's policy path. Although Trump nominated Warsh with hopes of interest rate cuts, persistent inflation, strong employment, and pressure from the bond market are continuously increasing the probability of a rate hike. The market is not only repricing the Fed's policy direction but also sending a signal to the White House through yields—to resolve the US-Iran conflict as soon as possible to alleviate inflationary pressures. For Warsh, who is about to take office, he may have to begin his term as Fed Chair with expectations of rate hikes rather than rate cuts, and the power of the bond market may become a significant constraint during his term.
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