- On January 9, 2026, Treasury yields rose, with the 2-year near 3.54%, the 10-year around 4.18%, and the 30-year about 4.82%.
- The yield curve has re-steepened, with the 10s–2s spread back positive and long rates above short rates.
- Markets have sharply pared near-term Fed-cut expectations, with January cut odds falling to roughly 5–13% and March odds also lower.
- Sticky inflation and heavy deficit-driven issuance are keeping long-end yields and term premiums elevated even as the CBO expects rate cuts later in 2026.
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On January 9, 2026, the U.S. Treasury curve displayed clear signs of normalization: the benchmark 10-year yield stood at approximately 4.18 %, while the 2-year yield was about 3.54 %, and the 30-year reached ~4.82 %. The 10-2 spread—which had been negative during prolonged yield curve inversion—has turned positive, indicating shifting expectations for economic growth, inflation, and future Fed policy.
Shorter-term yields (1- to 2-year) are now significantly lower than longer-term yields (10- to 30-year), suggesting that markets are moving away from anticipating further Fed rate hikes and instead projecting rate cuts—though likely not immediately. In fact, market pricing has sharply reduced the probability of a Fed rate cut in January, down to the 5-13 %-range, and has also trimmed expectations for cuts in March.
Beyond policy expectations, long yields remain elevated, especially for tenors beyond ten years. Pressure is coming from several sources: inflation remains sticky—core inflation reportedly nearly 2.7 %, well above the Fed’s target—and fiscal deficits and debt issuance expectations are large, pushing term premiums higher. The CBO projects 10-year yields will rise to around 4.3 % by 2028, even as short rates fall.
Strategic implications for investors: duration sensitivity is increasing. With long-end yields high and upward biased, bond prices for long maturities may face headwinds. However, flattening at the short end (or low volatility) may offer selective opportunities in front-end securities. The tilting down of short expectations also elevates risk around inflation surprises and external shocks, which could re-steepen the curve unexpectedly.
Open questions: How will upcoming CPI releases (e.g., December 2025) alter inflation expectations? How sustainable are high long rates without Fed tightening or major fiscal adjustment? What will the new Fed leadership under Trump do if political pressure mounts? And will debt issuance or global bond-holder demand buffer long term yields or push them higher?
Supporting Notes
- January 9, 2026 Treasury yields: 10-year at 4.18 %, 2-year at 3.54 %, 30-year at 4.82 %.
- Spread between 10-year and 2-year Treasury yields has restored to positive ~0.5 %+, signaling normalization of the curve.
- Probability of Fed rate cut in January dropped from ~13 % to ~5 %; March cut odds fell from ~30 % to ~25 % in recent market pricing.
- CBO forecasts Fed short-term rate cutting to begin in 2026, bringing fed funds to ~3.4 % by end of Trump’s term; meanwhile 10-year yields expected to rise to ~4.3 % by 2028.
- Inflation expectations: December CPI is expected at ~2.7 % year over year for headline and core, with reports that inflation is holding higher than target.
- Elevated term premium in long-term bonds, notably 20- and 30-year tenors, reflects fiscal and inflation risks.