The U.S. bond market is in turmoil, with the 30-year Treasury yield surging above 5%. This spike, fueled by massive federal deficits and persistent inflation fears, is signaling growing skepticism that the Federal Reserve will cut rates in 2026.
Despite recent rate cuts, long-term yields continue to rise, a disconnect that points to market unease about the fiscal outlook. The Treasury’s announcement of additional borrowing needs, the Moody’s credit rating downgrade, and incoming Fed Chair Kevin Warsh’s anticipated policy direction all complicate the picture.
Prediction markets reflect the shift. The "Will no Fed rate cuts happen in 2026?" contract is now trading at 61.7% YES, up from 57% a day ago. Markets also price a 97.5% chance of no change at the June FOMC meeting and 91.5% for July. All eyes remain on inflation data, Treasury borrowing plans, and comments from Powell and Warsh.