The U.S. 10-year Treasury yield fell to 3.81% in Friday's late session, the lowest level since November 2024 and a 14 basis point drop on the week. The two-year yield, more sensitive to Federal Reserve policy expectations, plunged to 3.42%, taking the year-to-date decline to 78 basis points and confirming a market that has decisively priced an active Fed easing cycle through 2026.
The rally accelerated after Chicago Fed President Austan Goolsbee told CBS Face the Nation that a June rate cut was "all but certain" and that the central bank could cut as much as 75 basis points by year-end if inflation continues its current trajectory. CME FedWatch implied probability of a June 25 basis point cut climbed to 84%, while the probability of two or more cuts by September reached 71%.
PCE Confirms the Disinflation
Friday's core personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, came in at 2.4% year-over-year, matching consensus and 0.3 percentage points below the prior reading. Three-month annualized core PCE has now run at 2.05% since January, effectively meeting the Fed's 2% target.
The surprisingly tame inflation data came alongside a soft April employment cost index showing 0.7% quarterly wage growth, the lowest reading since 2021. Goldman Sachs chief economist Jan Hatzius wrote in a Friday note that "the data has crossed the threshold for sustained policy easing" and the firm now expects 100 basis points of cuts by year-end versus 75 previously.
Mortgages and Corporate Credit Catch a Bid
For consumers, the lower yields are translating directly into lower borrowing costs. Freddie Mac's 30-year fixed mortgage rate fell to 5.94%, the lowest level since 2024, prompting the Mortgage Bankers Association to forecast a 22% surge in May refinancing applications versus April.
Corporate credit markets responded similarly. Investment-grade spreads tightened to 84 basis points over Treasuries, the tightest level of 2026, while the high-yield BB+ index reached 218 basis points, also a year-to-date low. Forward-looking debt issuance pipelines now estimate $312 billion in May investment-grade supply, the heaviest single month since the post-pandemic refinancing wave of 2021.