2-Year Treasury Yield — Impact on Fed Rate Prediction Markets

How 2-Year Treasury Yield Moves Fed Rate Prediction Markets

Daily 2-year U.S. Treasury constant maturity yield — the rate most sensitive to near-term Fed expectations.

The 2Y yield is the most forward-looking proxy for near-term Fed policy. It often moves BEFORE the Fed acts, making it a leading indicator of meeting outcomes.

The Bayesian Sensitivity Model

The model calibrates a sensitivity coefficient for each indicator: how many percentage points the odds at the next FOMC meeting shift toward a hike or a cut per standard deviation of surprise. For 2Y Yield, the preliminary coefficient is ±+/- 2–4pp on next-meeting odds. This means if2Y Yield comes in 1 standard deviation above consensus (hawkish surprise), the model shifts the odds toward a hike by approximately +/- 2–4pp on next-meeting odds.

These coefficients are preliminary until calibrated from at least 20 historical observations of Kalshi price reactions to each release. The calibration uses a regression of (surprise_zscore × sensitivity_coefficient) against observed Kalshi probability changes, cross-validated against CME FedWatch data going back to 2015.

Related reading: September 2026 hike — graded — the Fed raised to 3.75–4.00%; what Kalshi, Polymarket and futures priced, and which was closest.