Examining US bonds and the yield curve before the FOMC decision

[Ben Graham]

In case you haven't seen our introduction to bond yields and an explanation on their recent moves, I formally invite you to read it over which may help you to understand some of tomorrow's moves.

Recent movements in Bonds: Why are government bond yields rising so much as of late?

What is the Fed Funds rate and why is the FOMC meeting so big?

Tomorrow, and as-usual for every FOMC meeting, the Federal Reserve will decide whether or not to change its Main policy rate, the Fed Funds, currently locked between 4.25% to 4.50% (Effective Fed Funds is at 4.33%, but that's a technicity).

You will usually see the higher bound of that range represented, which is why you usually hear the "4.50%" rate from US President Trump and media – We will use this rate for the article.

You can read more on the Federal Funds rate directly from the FED website right here.

The FOMC is closely watched due to all banks (Central Banks and all others), traders, investors using this rate as the main US Dollar financing rate.

As the Reserve currency, the US Dollar and its supply will have a great influence on global yields, demand and prices.

Read More:

• WTI Oil breaks out as Russia menaces with output cuts and USD weakness fuels energy rally
• Guide to the FOMC statement and September SEP: Key takeaways and what to watch
• Swiss franc leads majors as US session begins and reclaims 2025 crown

The current US Treasury Yield Curve

Current vs 2-year ago Yield Curve – Source: TradingView

Small explanation on the yield curve

The current curve (blue) is inverted –compared to a Flattening yield curve in purple– which means that the market expects that the yield on short-term obligations will be lower than on long-term ones.

This is due to lower inflation expectations and a lower time compensation in the short run, compared to higher inflation expectations and higher risk to outstanding debt in the long run.

The 2-Year yield is the closest to expiry and is the best view of where the market expects the Fed Funds rate to be within the next two years.

The same is true for 5-year and longer-term yields, but these also include a time-risk premium (and of course, reflect demand).

This is why, for example, 30-year yields will be tied to longer-run mortgages for consumers, as they tend to reflect longer-term risks for banks to lend.

Also, one of the keys to understanding yields is that the higher the demand (or price), the lower the yield.

Conversely, if fewer people want bonds, they will sell them, causing the yield to go up to attract more demand.

One of the talks and curve pricing since Donald Trump's investiture is how wider deficits steepens the curve even more (pressure for lower short-term rates puts pressure towards higher rates in the long-run).

A jumbo cut tomorrow would hence boost economic activity and markets would hence price higher future inflation.

Current US Yields and change in today's sessions

US Yields from the 2Y to 30Y and daily performance – September 16, 2025 – Source: TradingView

As you can see, these yields are showing another form of the blue curve observed just before.

With the current huge selling in the US Dollar, market participants are hedging for an eventual 50 bps which is leading to big steepening in the curve.

When the 2Y Yield decreases more than the 30Y, this is considered Bull steepening: Bond traders bought more the front (short-term bonds) than the back (long-term bonds).

Let's now look at different Bond charts and spot key levels for them.

2 Year US Treasury Bond

US 2Y Bond, September 16, 2025 – Source: TradingView

10 Year Treasury Bond

US 10Y Bond, September 16, 2025 – Source: TradingView

This bond is traditionally seen as the benchmark for the safest and most liquid financial product.

Watch a break of the most recent highs (113.86) for further continuation towards the September 2024 highs. You may also check the equivalent Yields on the charts.

Any downside below the Key 112.50 pivot (Yield = 4.25% to 4.30%) should lead to further increase in the yield.

It is extremely difficult to anticipate what will be said in such a key FOMC but all eyes will be on the statement (14:00 ET) and Powell's speech (14:30 ET).

Watch for any clues on potential dovishness from Powell which may add more rates towards the end of 2025 (25 bps for each meeting, 3 meetings left is the current pricing).

Any unexpected hawkishness could have different effects: Either take out rate cuts in 2025 (flattening the curve) or take out 2026 cuts (steepening the curve even more).

Tomorrow will be essential for all assets, currencies and flows for the coming period.

Of course, do not forget the Bank of Canada rate decisions at 9:30 tomorrow morning and the Bank of England rate decision at 7:00 on Thursday 18th.

Safe trades and a successful FOMC session!

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