NEW YORK, August 28, 2026, 14:25 EDT — The yield on the two-year Treasury climbed 9.5 basis points as comments from Warsh boosted the likelihood of a rate hike in September.
- The yield on the two-year Treasury increased by 9.5 basis points to 4.325%.
- The yield on the 10-year note rose 2.8 basis points to 4.70%.
- The probability of a rate increase in September rose to 55.7%, up from 35.4%.
The yield on the two-year Treasury rose to its highest level in a month on Friday, following an inflation warning from Federal Reserve Chair Kevin Warsh.
The yield climbed by 9.5 basis points to reach 4.325% following the speech. The yield on the 10-year gained 2.8 basis points to 4.70% Reuters.
The gap is significant. Shorter maturities tend to follow policy expectations more directly than longer-term bonds.
Warsh stated that policymakers would face tasks ahead if they were not certain inflation was on track to reach 2%. He called output strong and said labor markets appeared steady Federal Reserve remarks.
Rate futures rapidly adjusted, with implied odds of a September rise climbing to 55.7%, up from 35.4% before the speech Reuters market report.
| Market signal | Before / prior | After Warsh | Change |
|---|---|---|---|
| Two-year Treasury yield | 4.230% | 4.325% | +9.5 bp |
| 10-year Treasury yield | 4.672% | 4.700% | +2.8 bp |
| 2s10s curve spread | 44.2 bp | 37.5 bp | −6.7 bp |
| September hike probability | 35.4% | 55.7% | +20.3 points |
The curve flattened as the yield sensitive to policy climbed more rapidly. This pushes up short-term borrowing costs while long-term rates remain unchanged.
Stocks withstood the rate surprise, with the S&P 500 up 0.38% and the Nasdaq advancing 0.41% in afternoon trading.
The dollar gained ground. Gold declined as expectations for higher real rates raised the opportunity cost of owning bullion.
The repricing alters various investor assessments. Floating-rate borrowers encounter increased reset risk, and short-duration bonds become more attractive for their relative income.
Growth assets with long durations continue to react to upcoming inflation data. When discount rates rise, the present value of cash flows far in the future decreases.
The official Treasury yield curve is released around the close of each business day. Final readings for Friday can vary from intraday pricing U.S. Treasury data.
Markets now see a two-way outcome for the September meeting. The CME FedWatch probabilities will shift in response to labor and inflation figures.
Risks: Warsh stopped short of guaranteeing an increase. A dip in inflation or jobs numbers might undo the change, and large Treasury supply may sustain higher long-term yields on its own.
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