2-year Treasury yield falls below 4% to reach the lowest point since October 2024

The 2-year U.S. Treasury yield dropped below 4% for the first time since October 2024. The 2-year Treasury yield went down by eight basis points to settle at 3.99%. U.S. Treasury yields and prices ‘see-sawed’ on Friday after a heated verbal exchange between the U.S. President Trump and Ukrainian President Zelenskyy signaled growing geopolitical tensions. 

The U.S. Treasury market posted its largest monthly gain since July last year despite ending the period with short-term yields falling below 4%. The 2-year Treasury yield was down more than eight basis points at 3.995%.

Yields on two, three, and five-year Treasury notes dropped as much as six basis points on February 28 to levels last seen in October after inflation-adjusted consumer spending dropped unexpectedly last month. Some economists consequently trimmed their estimates for first-quarter growth, as per Bloomberg. 

The 10-year Treasury yield also fell five basis points to 4.22% as yields and prices moved in opposite directions.

U.S. Treasury yields plummeted after an exchange between President Donald Trump and Ukrainian President Volodymyr Zelenskyy raised concern over growing geopolitical tensions. President Zelenskyy was in Washington to discuss a possible deal that would give the U.S. access to rare earth minerals in an effort to end the Ukraine-Russia war. 

Treasury yields drop as Trump-Zelenskyy tensions escalate

2-Year Treasury Yield drops below 4% for the first time since October 🚨 The last time the 2-Year Yield jumped above 5% and then dropped below 4% foreshadowed the Global Financial Crisis 👀 pic.twitter.com/iUVi9NMtoa

— Barchart (@Barchart) March 1, 2025

The 2-year Treasury yield dropped nearly eight basis points to 3.987% for the first time since last October, the 10-year yield fell almost five basis points to 4.21%, and the 30-year yield dipped below 4.5% for the first time since mid-December following an open verbal conflict between Trump and Zelenskyy in the Oval Office on February 28.

Trump told Zelenskyy to either make a deal or count the U.S. out, warning the Ukrainian President that he was “gambling with World War III.” Zelenskyy left before a scheduled press conference, but Trump stated that he was free to return when he was ready for peace. 

Jay Hatfield, Chief Executive Officer at Infrastructure Capital Management, said that the tense verbal exchange was “basically just like a street fight on national television,” adding that there had never been such a conflict between two leaders like that. 

“Treasuries don’t often enjoy the sort of strong start to a year they are experiencing — 2008, 2016 and 2020 were the only better initial rallies this century.”

–Garfield Reynolds, MLIV Asia Team Leader

Meanwhile, Morgan Stanley Investment Management’s CIO of broad markets fixed income, Michael Kushma, claimed that the tariffs Trump promised to take effect next week will lower 10-year Treasury yields. 

Drop in yields helps nudge U.S. Treasury Index higher by 1.7% 

According to VettaFi, the drop in yields over recent sessions helped nudge the U.S. Treasury Index higher by 1.7% in February as of Thursday’s close. It was also the best start to a year for Treasuries since 2020, with the index jumping 2.2%. This demonstrated how rapidly fortunes could shift in the world’s biggest bond market. The 10-year yield was still above 4.5% just a week ago, and it was seen as likely to entice sellers at that level based on the potential for a trade war to promote inflation.

George Catrambone, the head of fixed income at DWS Americas, said that his firm turned neutral on 10-year Treasury debt this week after buying it in January when the yield reached 4.8%. However, according to Janet Rilling, the senior portfolio manager at Allspring Global Investments, inflation fears were likely to keep the 10-year yield between 4.25% and 4.75%. 

Treasury Secretary Scott Bessent declined to set a target level for 10-year yields and downplayed concerns over the economic outlook even as sentiment for bonds picked up amid a string of softer secondary economic indicators in the U.S. combined with U.S. President Donald Trump’s tariff threats.

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