Bond Market Expects Relief: Curve Steepens as Fed Cuts Gain Confidence

On Monday, investors in the U.S. Treasury market made their views clear: they’re now betting that the Federal Reserve will begin easing monetary policy. The signal? A steepening yield curve—where longer-term interest rates outpace shorter-term ones—now at levels we haven’t seen in years.
Current yield spreads show a growing belief that rates could drop by a full percentage point by mid-2026. That’s a sharp shift from today's benchmark rate, which stands at between 4.25% and 4.5%. The steepening curve suggests that buyers are piling into longer-term bonds, banking on the idea that rates have already peaked and will soon move lower.
This behavior reveals more than just rate expectations—it hints at a broader mood shift. Investors are starting to imagine a return to easier monetary policy, even while inflation remains sticky. In effect, the bond market is signaling a willingness to look past near-term price pressures in favor of smoother economic landing.
Of course, this bullish stance comes with caveats. If inflation refuses to slow or the Fed doubles down on its hawkish tone, the curve could flatten—or worse, invert—putting markets on edge. But for now, the message is clear: the yield curve is speaking—markets are pricing in relief, convinced that eventual Fed action is coming.