Short-End U.S. Treasury Yields Continue Rising to Over Two-Year Highs; Bank of America Recommends Betting on Rate Hikes to 5.25%
nashnova research
The 2-year Treasury yield climbed to 4.74%, the highest since July 2024, and Bank of America promptly told clients to bet it keeps rising to 5.25% — the market is pricing in at least one more Fed hike this year.
Why did short-end yields spike?
The 2-year yield rose to 4.74% on Friday; the 5-year moved up at least 7 basis points. Long-end gains were smaller, flattening the curve further.
This means → the market is concentrating pressure on the maturities closest to the policy rate — traders are positioning for more hikes, not for recession.
The trigger: Fed Chair Kevin Warsh's post-hike remarks were read as signaling at least one more increase this year, accelerating the short-end selloff.
What exactly is BofA recommending?
A BofA rates strategy team led by Mark Cabana advised clients to pay 2-year fixed in the interest-rate swap market — entering at 4.73%, targeting 5.25%.
In plain terms = this is a trade betting that short-end rates still have roughly 50 basis points of upside.
The team also recommended betting that 2-year yields rise further relative to 30-year yields — a steepener on the inverted curve. This week the 2s/30s spread narrowed to under 60 basis points, the tightest in over a year.
How intense is the short-selling pressure?
Tony Farren, managing director at Mischler Financial, said the market is broadly positioned short because the Fed is in a tightening cycle and the odds of stopping after one hike are near zero.
The most recently issued 2-year and 5-year notes are trading "special" in the repo market — their lending rates have fallen below the benchmark rate.
This means → short-sellers are competing so aggressively for these bonds that holders can lend them out at below-market cost — a clear sign of how crowded the short trade has become.
Can rates really reach 5.25%?
BofA strategists wrote that short-end rates will keep climbing and the curve will keep flattening until clear evidence emerges that policy has entered restrictive territory.
But the Fed has explicitly refused to offer forward guidance — this signals the central bank wants to preserve flexibility and avoid being boxed in by markets.
In plain terms = whether 5.25% is reached depends not on how the market bets, but on whether incoming economic data are strong enough to justify further hikes. Strong data, more hikes; soft data, and this trade loses money.
市场有风险，内容仅供研究参考，不构成投资建议。