US Treasury yields have fallen to their lowest levels since May. The 10-year yield is around 4.1569%, while the 2-year yield is approximately 3.5837%. This trend indicates that fixed interest rates in the bond market are decreasing. The drop in yields mirrors current market conditions and investor sentiment. These yield changes are being closely monitored, as they can signal wider economic trends.

The Current Economic Outlook

The recent decline in Treasury yields points to a weaker economic outlook and suggests that the Federal Reserve’s cycle of raising interest rates may be ending. This view is supported by the August 2025 jobs report, which revealed that payrolls grew by only 95,000—far below expectations. A slowing labor market makes a stronger case for lower interest rates in the future. Given this trend, we recommend taking long positions in Treasury futures contracts, especially for the 10-year (ZN) and 2-year (ZT). This strategy bets on further declines in yields, which would lead to higher prices for these futures. The upcoming FOMC meeting later this month could further influence prices if the Fed acknowledges the slowing data. Another approach is to use options, such as buying call options on Treasury futures or selling put spreads. This strategy allows us to take a positive stance on bond prices while managing risk, which is wise as volatility may increase around new data releases. The latest CPI inflation report for August 2025 showed a low 2.5% year-over-year increase, reinforcing our confidence in the ongoing disinflation trend.

Swaps Market Strategy

In the swaps market, we see a chance to take positions that involve receiving fixed rates and paying floating rates. This setup is likely to be profitable if we are correct in predicting that short-term policy rates, like SOFR, are at their peak and will start to decline soon. This situation mirrors early 2019 when the market anticipated the Fed’s shift to rate cuts before they were officially announced. Create your live VT Markets account and start trading now.

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