- US interest futures remain elevated as the Federal Reserve delivered a 25-bps rate cut this Wednesday.
- Treasury yields fell, with a widening 2s10s spread, indicating a further steeper curve in 2026.
- The softer-than-expected jobless claims data reinforces easing Fed cycle, lending room to the interest futures.
US interest futures edged higher on Thursday as Treasury yields retreated for a second consecutive session, with traders betting on a softer policy trajectory following the Fed’s 25-bps rate cut. However, the investors focused on the split in the committee and the Fed Chair’s tone, which signaled more easing in 2026, despite the emphasis on “further clarity.”
The immediate market reaction was tied to the Fed’s announcement that it will start buying short-dated Treasury bills on Friday. The move was intended to stabilise front-end funding and replenish reserves quickly. The $40 billion monthly buying was interpreted as a clear signal that the central bank wants more control over short-term rates, which kept the SOFR and fed funds higher throughout the session.
In response, the Treasury yields fell, led by the belly of the curve. The 10-year yields slipped to 4.14%, snapping the 4-day rally. The 30-year yields eased slightly to 4.792%, while the 2-year yields, which are most sensitive to Fed expectations, fell to 3.526%. The curve went steeper as the 2s10s spread widened to 61 bps, the strongest level since September. The traders position for a shift toward a further steeper curve in 2026.
The recent labor market data provided another boost to the rally in futures. Initial jobless claims rose to 236k, the largest weekly rise since early 2020. Although the analysts consider this a distortion due to the Thanksgiving holiday, the jump justifies the Fed’s dovish tilt. Interest futures traders interpreted this as a sign of a continued easing path rather than a sign of economic deterioration. The markets now anticipate 25% odds of a rate cut in January, followed by two more cuts by mid-year.
Major institutional strategists noted that the Fed’s renewed balance sheet expansion could keep the front end underpinned. JPMorgan and Barclays expect the Fed to absorb a significant share of T-bill issuance in 2026, around $500 billion, reducing pressure on short-term funding markets. These measures, combined with soft inflation expectations, signal the US interest futures will remain supported into early 2026.