Why Treasury Yields Are Falling Today: Core PCE Strips the Fed's Inflation Cover
The 2-year Treasury yield collapsed 18bps to 3.42%, its lowest since June, after September core PCE printed 0.1% m/m and 2.1% annualized — the third consecutive sub-0.2% monthly core reading. That streak matters because the Fed's September dots still embedded a 2.6% end-2026 core assumption; the data is now running half a point below the committee's own forecast, and front-end desks traded it instantly. The 2s10s curve steepened to +52bps from +38bps as the long end barely budged (10-year at 4.31%, -4bps), confirming this is a pure policy-rate repricing, not a growth scare.
Volume validated the move: $3.1 trillion notional in SOFR futures traded in the session, 2.4x the 30-day average, with the December 2026 contract pricing 1.28 cuts versus 0.71 a week ago. The December FOMC is now a 92% probability event on FedWatch, up from 61% on 17 October.
Why Are US Treasury Yields Rising at the Long End? Term Premium Still Fights the Front-End Rally
While the 2-year craters, the 30-year sits at 4.88% (+1bp) and the 10-year term premium holds near 88bps — so long-end yields are not falling because supply and fiscal risk remain the binding constraint. The Treasury's Q4 refunding calendar still pencils $1.1 trillion in net coupon issuance, and with the Fed's balance sheet shrinking at $35 billion/month, dealers must absorb duration even as they scramble for front-end gamma. That divergence is why the curve is steepening, not bull-flattening: investors are paying up for 2-year protection while refusing to extend into 30-year supply.
Are Treasury Yields Going Up? FedWatch at 92% Says the Market Has Already Priced the Cut
The Polymarket market on a NYSE marketwide circuit breaker before 2027 sits at just 7.5% implied probability on $133,193 total volume — a crowd-sourced verdict that a policy-driven front-end rally is easing systemic crash risk, not creating it. Yet the 24-hour volume of only $35 on that contract highlights thin prediction-market liquidity relative to the $28 trillion Treasury market it references. The more telling contrast: FedWatch's 92% December cut probability versus the Fed's own September dot plot, where only 7 of 19 participants projected a cut by year-end. Capital is defying the official forecast, and the 2-year's 42bp two-week collapse is the proof.
The Gamma Scramble: Front-End Desks Hedge for Sub-3.30%
Options markets confirm the positioning shift: 2-year Treasury futures open interest in 3.25% strike puts and calls expiring December surged 38% week-over-week, and dealers are short gamma, forced to chase the rally. The MOVE index on the 2-year fell to 88 from 104 as realized volatility collapsed, but the skew toward upside call demand tells you desks expect more easing pricing. A break below 3.30% would trigger the next leg of dealer hedging. The risk is symmetric: any November CPI surprise above 0.3% core unwinds the 92% cut probability and snaps the 2-year 25bps higher, punishing the late gamma buyers.
