Yields Fall as Fed Rate Cut Outlook Tightens, 2-Year Treasury PM 02-13-2026

Market expectations for U.S. Federal Reserve rate cuts have risen following inflation data below forecast, sending U.S. Treasury prices higher and yields lower. Current pricing implies 63 basis points of cumulative cuts this year—equivalent to a potential additional cut by year-end—giving a roughly 50% chance of three cuts for 2026, down from 58 basis points and higher odds previously. On February 13, 2026, the two-year Treasury yield touched 3.40% as yields fell 6 basis points, the lowest since October 2025. Prior to the data, strong employment readings had shifted the pricing of the first cut from June to July, with some banks pushing the first cut to late in the year. Data from the Bureau of Labor Statistics showed the core CPI-U rose 0.3% in January, the largest monthly increase since August 2025, but still below expectations. “With inflation easing, two more cuts in 2026 are reasonable,” said Tiffany Wilding, Pacific Investment Management economist. However, analysts caution that optimism may be exaggerated. “Without a surprise, the Fed may focus on labor market data,” said Aroop Chatterjee, Director of Research at Wells Fargo Securities. Yields remained broadly within 1–2 basis points of Friday’s open as sentiment moderated.