Quick take: DoubleLine Capital’s Jeffrey Gundlach flagged a rapid climb in the U.S. two-year Treasury yield and said the move points toward the possibility of a Federal Reserve rate rise.
In a post on X, Gundlach wrote: "The 2 year U.S. Treasury yield has risen 50 basis points in less than three weeks. It now suggests one Fed HIKE may be coming." His comment highlights the speed of the short-term yield's increase and frames it as a signal for policy action by the Fed.
The two-year Treasury yield touched a high of 3.928% on Thursday morning, before retreating to near 3.8% later in the session. That intra-day peak and subsequent pullback underline the recent volatility in short-term interest rates.
Despite the rise in the two-year yield, Fed fund futures continue to show limited probability of a rate hike. Markets, as reflected in futures pricing, are not currently positioning for an imminent Fed increase in policy rates.
At the same time, the article notes that odds of a rate cut this year have dissipated. According to the same reporting, the disappearance of cut expectations followed an uptick in interest rates tied to the conflict with Iran, which has in turn fueled investor worries about rising inflation.
This sequence of events - a rapid climb in short-term yields, a high watermark near 3.928%, muted Fed-hike probability in futures, and the elimination of rate-cut expectations after geopolitical-driven rate moves - forms the factual basis for Gundlach’s observation about the potential for a Fed hike.
Context limitations: The reporting relays Gundlach’s view, the observed yield levels and market pricing as stated, and notes the link between the Iran conflict, higher rates and renewed inflation concerns. No additional forecasts or conclusions beyond these facts are offered in this account.
Summary
Jeffrey Gundlach highlighted a 50 basis point increase in the two-year U.S. Treasury yield over less than three weeks and suggested it could presage one Federal Reserve rate hike. The two-year hit 3.928% on Thursday morning before easing to around 3.8%. Market-implied odds in Fed fund futures remain low for a hike, while expectations for a rate cut this year have vanished after rates rose amid the conflict with Iran and renewed inflation concerns.