The two-year Treasury yield climbed to its highest level since February 2025 on Monday, June 22, as bond investors repriced the path of Federal Reserve policy and braced for a fresh inflation reading later in the week. The yield on the two-year note, the maturity most sensitive to rate expectations, touched 4.232 percent in intraday trading, according to CNBC, the highest since February 21, 2025. The U.S. Treasury’s official daily par yield curve put the two-year at 4.24 percent at Monday’s close, up from 4.19 percent on June 18. The 10-year yield rose to 4.51 percent and the 30-year bond to 4.95 percent. The move extends a selloff that began after the June 17 Federal Open Market Committee meeting, where officials held the federal funds target at 3.50 to 3.75 percent but signaled through their projections that the next move could be a hike rather than a cut. Traders have pulled forward the odds of a rate increase, with some now eyeing September. The prime rate, which tracks the Fed’s policy rate, remains at 6.75 percent. Attention now turns to Thursday’s release of the May personal consumption expenditures price index, the Fed’s preferred inflation gauge. For a live read on the curve, see our Treasury yield curve dashboard and prime rate tracker.
Key Takeaways
- The two-year Treasury yield reached 4.24 percent on June 22, its highest level since February 2025.
- Yields jumped after the June 17 FOMC projected a possible 2026 rate hike instead of the cut markets had expected.
- The 10-year note rose to 4.51 percent and the 30-year bond to 4.95 percent at Monday’s close.
- Futures traders have pulled forward rate-hike odds, with September now in view.
- Thursday’s May PCE inflation report is the next major test for the bond market.
What Changed in the Bond Market
The selloff in short-dated Treasuries accelerated on Monday as investors digested the more hawkish message from last week’s Fed meeting. The two-year yield, which moves closely with expectations for the federal funds rate over the next two years, has climbed roughly 19 basis points since June 16, the day before the FOMC decision, when the Treasury par curve put it at 4.05 percent. By the June 22 close it stood at 4.24 percent. The 10-year yield rose from 4.43 percent to 4.51 percent over the same stretch, and the 30-year held near 4.95 percent. Bond prices fall as yields rise, so the repricing has handed paper losses to holders of recently issued notes. CNBC reported the two-year touched 4.232 percent intraday on Monday.
The spread between the 10-year and two-year yields stayed positive at about 27 basis points on June 22, according to Federal Reserve data, leaving the curve upward sloping rather than inverted. The shape matters because a steeper front end reflects markets pricing higher short-term rates for longer. The repricing was not driven by a single data release. Instead it reflected a shift in the expected policy path after the Fed dropped its prior easing bias. The yield on the one-year bill rose to 4.04 percent and the three-year note to 4.25 percent, showing the move rippled across the front of the curve. Our U.S. interest rate dashboard tracks these maturities side by side.
Why Yields Are Climbing
The driving force behind the move is the Federal Reserve’s updated rate outlook. At the June 16 to 17 meeting, the FOMC voted unanimously to hold the federal funds target at 3.50 to 3.75 percent, a decision markets had fully expected. The surprise came in the Summary of Economic Projections. The median projection for the federal funds rate at the end of 2026 rose to 3.8 percent, up from 3.4 percent in March, a level that implies one quarter-point increase to a range of 3.75 to 4.00 percent. The policy statement was trimmed to roughly 130 words from 341 in April and stripped of language that had pointed toward future cuts. Warsh, chairing his first meeting, declined to submit his own projection, calling the dot plot unhelpful for the conduct of policy.
Inflation is the backdrop. The May Consumer Price Index, released June 10 by the Bureau of Labor Statistics, rose 4.2 percent from a year earlier, the highest annual rate since April 2023, with energy prices driving more than half of the monthly gain. Core CPI, which excludes food and energy, ran at 2.9 percent. With price pressures still above the Fed’s 2 percent goal, officials have grown more cautious about easing. Bond investors responded by demanding higher yields to compensate for the risk that rates stay elevated. The result is the climb that pushed the two-year to a 16-month high. Our Fed rate forecast page lays out the projected path.
The PCE Report and the September Question
The next catalyst arrives Thursday, June 25, when the Bureau of Economic Analysis releases the personal consumption expenditures price index for May. PCE is the inflation measure the Fed weighs most heavily when setting policy, and economists polled by FactSet expect core PCE, which strips out food and energy, to tick higher from April’s 3.3 percent annual rate. A hotter reading would reinforce the case that inflation is proving sticky and could push yields higher still. A cooler print might relieve some pressure on the front end of the curve and trim the odds of a near-term hike.
Markets have already moved to price the risk. Following the hawkish meeting, futures traders pulled forward expectations for a rate increase, with some now positioning for action as soon as the September 16 to 17 FOMC meeting, according to CNBC. The Fed’s next decision comes July 28 to 29, a meeting that will not include updated projections. Between now and then, the May PCE report, the June jobs report, and a string of Fed speeches will shape the debate. For now the policy rate sits at 3.50 to 3.75 percent and the prime rate at 6.75 percent, unchanged since December. Whether the two-year yield keeps climbing depends largely on what Thursday’s data show. Our inflation tracker follows PCE and CPI together.
What Higher Yields Mean for Your Money
Treasury yields set the floor for much of what households pay to borrow and earn on savings. The 10-year yield is the main benchmark for fixed mortgage rates, so its climb toward 4.51 percent puts upward pressure on the cost of a new home loan. Borrowers shopping for a mortgage can compare current mortgage rates to see how the move is filtering through. Auto loans and personal loans, which are priced off intermediate Treasury yields and lender funding costs, can also drift higher when the front of the curve rises.
Variable-rate debt tied to the prime rate tells a different story for now. Credit card APRs and home equity lines of credit move with prime, which has held at 6.75 percent since the Fed’s December cut. Those rates will not change unless the Fed actually moves its policy rate, so the dot-plot signal matters more than the day-to-day yield swings. If the Fed delivers the hike its projections imply, prime would rise to 7.00 percent and variable borrowing costs would follow. On the saving side, higher yields can be a benefit. Banks often keep deposit rates elevated when Treasury yields climb, so savers can still find strong returns on high-yield savings accounts and certificates of deposit. Locking in a CD now can hedge against the chance that the Fed eventually reverses course and cuts. Our guide to how the Fed affects loans breaks down the transmission in detail.
Frequently Asked Questions
Why did the two-year Treasury yield rise this week?
The two-year yield tracks where investors expect the federal funds rate to sit over the next two years. After the June 17 Federal Reserve meeting, officials projected a possible rate hike in 2026 rather than the cut markets had penciled in. Bond traders responded by selling short-dated Treasuries, which pushes their yields up. The two-year reached 4.24 percent on June 22, its highest since February 2025. Sticky inflation, shown in the 4.2 percent May CPI reading, added to the pressure heading into Thursday’s PCE report.
What does a higher two-year yield mean for mortgage rates?
Fixed mortgage rates track the 10-year Treasury yield more closely than the two-year, but the whole curve moved together this week. The 10-year climbed to 4.51 percent on June 22, which tends to push 30-year mortgage rates higher with a short lag. If you are house hunting or planning to refinance, the recent move means slightly higher borrowing costs. Comparing offers from several lenders matters more when rates are rising, since the gap between the best and average quote can exceed the size of a single weekly move.
Will the Fed raise interest rates in 2026?
The Fed has not committed to a hike, but its June projections point that way. The median forecast from policymakers put the federal funds rate at 3.8 percent by the end of 2026, up from 3.4 percent in March. That median implies one quarter-point increase to a range of 3.75 to 4.00 percent. Whether it happens depends on incoming inflation and jobs data. Some futures traders now see a possible move as early as the September meeting. The Fed meets next on July 28 and 29 without updated projections.
How does the prime rate connect to Treasury yields?
The prime rate and Treasury yields respond to the same force, the Federal Reserve, but through different channels. Prime is set by banks at 3 percentage points above the upper bound of the federal funds target, so it only changes when the Fed moves its policy rate. It has held at 6.75 percent since December. Treasury yields, by contrast, trade freely and move every day on shifting expectations. That is why the two-year yield can climb while prime stays flat. If the Fed delivers the hike its dot plot implies, prime would step up to 7.00 percent.
What is the May PCE report and why does it matter?
The personal consumption expenditures price index, released by the Bureau of Economic Analysis, is the inflation gauge the Federal Reserve weighs most heavily. The May reading is due Thursday, June 25. Economists expect core PCE, which excludes food and energy, to rise from April’s 3.3 percent annual pace. A hotter number would strengthen the case that inflation is sticky and could lift Treasury yields further. A cooler number would ease pressure on the front of the curve and could trim the odds of a near-term hike, making it the week’s most important data point.
Should I lock in a CD or savings rate now?
Rising Treasury yields often keep deposit rates elevated, so savers still have attractive options. A certificate of deposit locks your rate for a set term, which protects you if the Fed eventually cuts and bank yields fall. A high-yield savings account keeps your money liquid but lets the rate float. If you expect rates to stay high or climb, a shorter CD or a top savings account preserves flexibility. If you want certainty, a longer CD secures today’s yield. Your choice depends on when you will need the cash.
Watching the Week Ahead
The bond market enters the final week of June focused on a single question: is inflation cooling fast enough to keep the Fed on hold, or sticky enough to force a hike. Thursday’s PCE report will frame the answer. Until then, the two-year yield near 4.24 percent and the 10-year near 4.51 percent reflect a market braced for higher rates for longer. Track the moves on our Treasury yield curve dashboard, follow the policy outlook on our Fed rate forecast page, and watch consumer effects on our Fed prime rate dashboard.
References
- U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates, June 2026: home.treasury.gov
- Federal Reserve Board, H.15 Selected Interest Rates: federalreserve.gov/releases/h15
- Federal Reserve, FOMC Statement, June 17, 2026: federalreserve.gov
- Federal Reserve, Summary of Economic Projections, June 2026: federalreserve.gov
- U.S. Bureau of Labor Statistics, Consumer Price Index, May 2026: bls.gov
- U.S. Bureau of Economic Analysis, Personal Income and Outlays: bea.gov
- Federal Reserve Bank of St. Louis, FRED, 2-Year Treasury Yield (DGS2): fred.stlouisfed.org
