US 2-year yield rises as Fed rate hike odds increase to 60%

The 2-year Treasury yield surged to roughly 4.32-4.36% on August 28, climbing as much as 12.8 basis points in a single session. The catalyst: traders now price a roughly 60% probability of a Fed rate hike at the September FOMC meeting, nearly double the 35% odds implied just one day earlier.

Warsh draws the line at Jackson Hole

Speaking at the annual gathering of central bankers in Wyoming, Warsh made clear that the Fed isn’t ready to declare victory on inflation. He stated the central bank would take necessary actions if inflation doesn’t return to the 2% target quickly enough, reinforcing short-term interest rates as the Fed’s primary policy weapon.

The 2-year yield, which is the bond market’s most direct expression of near-term rate expectations, hit its highest level in about a month. Strong employment data and rising energy prices had already been nudging yields higher throughout 2026, pushing 2-year rates to multi-month highs earlier in the year.

Equities caught in the crossfire

US stocks traded mixed as the bond market digested the new rate reality. The Nasdaq showed particular weakness, which makes sense. Higher discount rates compress the present value of future earnings, and future earnings are basically what growth stocks are selling.

Robust earnings from major technology companies helped prevent a broader selloff, and the VIX, Wall Street’s preferred fear gauge, actually declined on the session.

The yield curve itself tells the story. Shorter-term yields rose faster than their longer-term counterparts, flattening the curve in a pattern that typically reflects expectations of tighter monetary policy ahead.

What this means for portfolios and positioning

A 2-year Treasury yielding north of 4.3% starts to compete seriously with equity risk premiums. Tech stocks face a particularly tricky setup. Strong current earnings have insulated them from the worst of the rate-driven selling so far, but the sector has begun to differentiate more sharply between companies generating real cash flow today and those still burning capital in pursuit of future scale.

For rate-sensitive sectors like utilities, real estate, and small-cap stocks that rely heavily on floating-rate debt, higher rates mean higher costs, tighter margins, and less room for error.

The September FOMC meeting is now the marquee event on every macro trader’s calendar. If the data between now and then, particularly the next jobs report and CPI print, continue to show economic resilience and sticky inflation, Warsh will have the cover he needs to deliver the hike the market is starting to expect. If the data softens, those 60% odds could deflate just as quickly as they inflated.

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