US Treasury market shows ‘a little too much optimism’ in Fed rate cuts

The US Treasury market is showing an unnervingly optimistic view that interest rates will be cut in the next year, according to some investors and strategists, who are bracing for a potential disappointment.<br><br>The yield on the one-year Treasury note, which generally reflects bets on where interest rates will be in a year’s time stands at 5.12%, about 160 basis points below the Fed’s benchmark rate.<br><br>That is the largest gap between the two rates in the past four decades, according to data compiled by strategists at JPMorgan Chase.<br><br>Such a steep discount typically suggests the market expects interest rates to be cut significantly, according to David Mericle, an economist at Goldman Sachs, who has also flagged the anomaly. In the current environment, that would be more than 1%.