2Y Treasury Yield

DGS2 is the constant-maturity yield on the 2-year US Treasury, published daily by the Federal Reserve Board. The 2Y is the cleanest single instrument expressing the market's view of the average federal funds rate over the next two years, which makes it the most-watched proxy for the Fed policy path. It moves on every Fed-relevant data release (CPI, PCE, NFP, FOMC statements) before the Fed actually moves.

Why it matters: DGS2 is the "policy-expected" rate, and the gap between DGS2 and current fed funds tells you what the market thinks the Fed will do. When DGS2 trades below fed funds, the market expects cuts; when it trades above, hikes. The 2Y also defines the front end of the yield curve. Combined with DGS10 (the long end), DGS2 builds the 10Y-2Y spread, the most-cited recession indicator in finance.

DGS2 closed at 3.79% on April 24, 2026, with April readings ranging 3.78%-3.81%. With fed funds at 3.50-3.75% (upper bound 3.75%), the 2Y is trading roughly in line with the policy rate, implying the market expects the Fed to be approximately at the current rate on average over the next two years. The 8-4 dissent at the April 29 meeting (four officials wanted cuts) is consistent with this pricing: a small probability of cuts in 2026, mostly stable policy, with rising probability of cuts later.

The risk to DGS2 going lower is a labor market deterioration that triggers Sahm Rule recession signals and forces the Fed to cut. The risk to DGS2 going higher is an inflation re-acceleration that forces the Fed to hold longer or hike. The 2Y is mechanically sensitive to fed funds futures pricing, which can shift 5-15bp on a single CPI surprise.

Modern DGS2 range: 0.09% in 2020-2021 (zero-rate era), 5.21% in October 2023 (cycle peak), and 3.79% in April 2026. The 2Y reached 5%+ for the first time since 2007 during the 2022-2023 hiking cycle. The two drivers are the Fed policy path and inflation expectations over the policy-relevant horizon. Term premium at the 2Y is small (typically 10-30bp), so policy expectations dominate the level.

First, fed funds futures pricing for the December 2026 contract. Any sustained move above 3.75% reverses the cut narrative; below 3.25% would signal aggressive cut expectations.

Second, NFP and CPI surprises versus consensus. The 2Y typically moves 5-15bp on either release.

Third, the 10Y-2Y spread (T10Y2Y). The current +52bp re-steepening from a -108bp peak inversion is the late-cycle signal; sustained moves above +100bp historically precede recession by 6-18 months.