Takeaway

The presenter argues that the US 2-year Treasury yield, which hit an 18-month high, is signaling increased conviction that the Fed will keep rates higher for longer. Following a stronger-than-expected August jobs report, market pricing for a September rate hike has risen to 65%, making this week's US CPI and PPI data the key catalyst for the next move in yields and rate-sensitive assets.

What the presenter said

• The US two-year Treasury yield reached its highest level since early 2025 last week, driven by strong US jobs data. [00:03, 00:10]
• The jobs report reinforced expectations that the Federal Reserve could raise interest rates as soon as next week. [00:16]
• August Non-Farm Payrolls showed 162,000 jobs created, while July's figure was revised higher to 21,000. [00:33]
• The 2-year yield, being sensitive to rate expectations, ended the week around 4.37% after briefly hitting 4.42%, its highest level in over 18 months. [00:47, 00:57]
• A sharp rise in the 2-year yield suggests investors are concerned the Fed may keep rates high or hike again. [01:11]
• This week's CPI and PPI inflation data is now key; hotter-than-expected figures could lift Treasury yields further. [01:19, 01:50]
• The market is now pricing a 65% probability of a September Fed rate hike, up from 50% before the payrolls report. [02:07]
• A roughly 10% jump in oil prices last week, driven by intensified hostilities in the Middle East, is adding to inflationary concerns. [02:21]

Trade ideas

None stated. The presenter's market view is that higher Treasury yields, particularly at the short end of the curve, could put pressure on equities and gold.

Levels and data cited

• US 2-Year Treasury Yield: End of week level around 4.37%; briefly reached an 18-month high of 4.42%.
• August NFP: +162,000 jobs.
• July NFP (Revision): +21,000.
• Fed Rate Hike Probability (Sept): 65% (market pricing).
• Oil Prices: Jumped "around 10%" last week.

Risks and what would invalidate this

• Hotter-than-expected inflation data could reinforce Fed rate hike expectations and lift Treasury yields further.
• Higher oil prices add to inflationary pressures, feeding into expectations of a more hawkish Fed.
• The presenter notes that higher Treasury yields could put pressure on equities and gold.