Volatility in the Treasury market is low but Powell’s upcoming remarks could change that

Volatility in the Treasury market has dropped to some of its lowest levels in years, bring about a calm sentiment on the floor, but traders are waiting for Federal Reserve Chair Jerome Powell to speak at the upcoming press conference later today, as he can make or break the current calm in a single ￰0￱ situation comes at a time when policymakers at the Fed are split over the path of interest ￰1￱ policymakers see room to cut because the labor market is losing momentum, while others see their core measure of inflation (CPI) still above target, meaning holding steady is ￰2￱ 10‑year Treasury yield was holding around 3.98% in Asia on Wednesday, while the two‑year yield was near 3.49%.

If Powell sounds even slightly more hawkish than expected, traders say yields could jump above 4%. Higher yields mean higher borrowing costs across the ￰3￱ would impact everything from government financing to mortgages to corporate debt at a moment where growth and inflation remain unpredictable. Powell’s remarks may test the market’s calm Scott DiMaggio, head of fixed income at AllianceBernstein, said the market has already priced in most of the expected rate moves: “There’s a lot priced in for the Fed for the next 14 months and if there is any blip that can probably back up yields 25 to 30 basis points.” He added that technical levels suggest the 10‑year could reach 4.25% if sentiment ￰4￱ now, yields have stayed in a narrow range because the government shutdown has limited the release of fresh economic ￰5￱ new data, investors have little to react ￰6￱ ICE BofA Move Index, which tracks Treasury volatility, is near levels last seen during the ￰7￱ Chao, global market strategist at Invesco Asset Management, said, “Caution is warranted for Treasuries trading.” Chao noted that the labor market has softened enough to justify some easing but said he does not see a guarantee that cuts will ￰8￱ traders, however, see room for Treasuries to outperform into the end of the ￰9￱ around 4% appear attractive to buyers looking for stability, especially as the ￰10￱ war environment weighs on broader risk ￰11￱ cuts would add more ￰12￱ Sutherland, portfolio manager at Schroder Investment Management, said growth may pick up next year, which could create more caution among ￰13￱ he added that with this year’s cuts already in motion, “we still think the point of least resistance is lower rather than higher yields.” Yield curve signals face unusual economic conditions Since the end of the pandemic, the ￰14￱ has handled major disruptions: rapid inflation, aggressive tightening, a regional banking crisis, the ongoing trade confrontation abroad, and now a government ￰15￱ the economy has continued ￰16￱ Atlanta Fed’s GDPNow model currently estimates growth near a 4% annualized ￰17￱ Harvey, the Duke University professor who first linked yield curve inversions to recession probabilities, said this cycle may be ￰18￱ pointed to strong household and corporate finances, sustained government spending, and investment tied to artificial intelligence.

“Massive fiscal spending – that’s so different historically,” Harvey said. “That’s fairly unusual.” The yield curve inversion began in October 2022. Historically, recessions have followed an inversion by roughly 11 ￰19￱ the collapse of Silicon Valley Bank in May 2023, the gap between 10‑year yields and 3‑month yields widened to more than 1.8 percentage points, the deepest since ￰20￱ curve turned slightly positive in December when the Fed began ￰21￱ that move signals recession is close, because the Fed is trying to support ￰22￱ that signal did not ￰23￱ Fed stopped cutting as 2025 began and only resumed last month because both the economy and inflation continued to run stronger than expected.

“The yield curve predicted the last eight recessions,” Harvey said . “At some point it’s going to deliver a false ￰24￱ eight out of nine is pretty good.” Want your project in front of crypto’s top minds? Feature it in our next industry report, where data meets impact.