2-Year Treasury Yield Gains Ground on the 10-Year

• The 2-year yield jumped 96 basis points since its February 27 low of 3.38%, compared to an 80-basis-point rise for the 10-year over the same period
• Markets are pricing in a 58.4% probability of a Fed rate hike in two weeks, according to the CME FedWatch tool
• Rising Treasury yields could pressure equity valuations, particularly for growth stocks, as higher bond returns become more attractive to investors

Summary: 2-Year Treasury Yield Gains Ground on the 10-Year

Key Developments

Treasury yields have risen sharply in 2026, with the yield curve experiencing significant steepening. As of September 3, 2026, the 2-year Treasury yield reached 4.34%, up 87 basis points from 3.47% on January 2. The 10-year yield increased 58 basis points over the same period to 4.77% from 4.19%.

Critical Data Points

The spread between the 2-year and 10-year yields has narrowed from 72 basis points at the start of 2026 to just 43 basis points. This compression has accelerated since February 27, when the 2-year yield hit a 2026 low of 3.38%. Since that trough, the 2-year has surged 96 basis points compared to an 80-basis-point rise for the 10-year.

On Friday, September 4, the 2-year yield reached its highest level since January 2025, driven by a stronger-than-expected jobs report.

Market Implications

The 2-year yield's rise reflects heightened Federal Reserve rate-hike expectations, with the CME FedWatch tool pricing in a 58.4% probability of a rate increase within two weeks. The 10-year yield's movement reflects longer-term inflation and economic growth expectations.

For equity investors, the continued climb in Treasury yields poses a threat to stock valuations, particularly for growth stocks, as higher risk-free returns make equities relatively less attractive. The narrowing spread between short and long-term yields suggests markets are anticipating more aggressive near-term monetary tightening while maintaining tempered long-term economic growth expectations.