Market Defies Fed’s Dovish Signals as Treasury Yields Surge

The Federal Reserve's anticipated 25-basis-point rate cut in September is failing to curb rising Treasury yields, signaling a breakdown in traditional monetary policy transmission. Traders now price in 50 basis points of cuts for 2025, with a one-in-three chance of 75 basis points this year—yet risk assets remain unloved.

Bond markets revolt as the U.S. Treasury floods markets with $200 billion in new issuance over five weeks. The 10-year term premium, reflecting investor demands for holding long-dated debt, hits decade highs. Core inflation's persistence above 3% erodes the dollar's purchasing power, compounding pressures on yield-sensitive assets.

This disconnect mirrors the UK's bond market turmoil, where the Bank of England's five rate cuts in a year failed to stabilize long-dated gilts. The Fed risks losing control of the yield curve as fiscal dominance overpowers monetary policy—a structural shift with implications for alternative stores of value.