Analysis: A 2-year yield below the federal funds rate is a signal of interest rate cuts, but market expectations may be wrong.

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Jin10 data May 1 news, U.S. Treasury Secretary Basent stated that a 2-year Treasury yield below the federal funds rate is a signal for the Federal Reserve to cut interest rates. The financial website Forexlive pointed out that this bold comment is a classic "rule of thumb" in the market. A 2-year Treasury yield below the federal funds rate is a signal indicating that the market believes the tightening cycle has ended and expects the Federal Reserve to cut rates soon. The issue here is that it is based on market expectations, which can sometimes be wrong. We saw that in 2023, the 2-year Treasury yield was below the federal funds rate for a long time but then rebounded and leveled off.

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