The link between bonds and rates
The US03M tracks the yield investors demand to lend to the U.S. government for three months, and this yield moves closely with the Federal Funds Rate set by the Fed.
When the Fed hikes, short‑term Treasury yields usually rise toward the new policy rate, and when markets expect cuts, these same yields start dropping before the official decision.
Why US03M front‑runs the Fed 🕒
US03M is a pure play on near‑term monetary policy, so traders price in where they think the Fed Funds Rate will be over the next quarter, not where it is today.
As a result, sharp declines in US03M while the official Fed rate is still flat often signal that fixed‑income markets are betting on upcoming rate cuts.
Why a 25 bps cut is likely 🎯
With US03M hovering roughly a quarter of a percent under the current effective policy rate area shown on the chart, the bond market is effectively voting for at least a 25 bps reduction at the next meaningful decision.
If the Fed cuts by 25 bps, US03M is already priced for that move, so the bigger reaction will come only if the Fed surprises with either a larger cut or no cut at all, giving traders a clear benchmark for risk positioning.
The US03M tracks the yield investors demand to lend to the U.S. government for three months, and this yield moves closely with the Federal Funds Rate set by the Fed.
When the Fed hikes, short‑term Treasury yields usually rise toward the new policy rate, and when markets expect cuts, these same yields start dropping before the official decision.
Why US03M front‑runs the Fed 🕒
US03M is a pure play on near‑term monetary policy, so traders price in where they think the Fed Funds Rate will be over the next quarter, not where it is today.
As a result, sharp declines in US03M while the official Fed rate is still flat often signal that fixed‑income markets are betting on upcoming rate cuts.
Why a 25 bps cut is likely 🎯
With US03M hovering roughly a quarter of a percent under the current effective policy rate area shown on the chart, the bond market is effectively voting for at least a 25 bps reduction at the next meaningful decision.
If the Fed cuts by 25 bps, US03M is already priced for that move, so the bigger reaction will come only if the Fed surprises with either a larger cut or no cut at all, giving traders a clear benchmark for risk positioning.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.