Tom Lee: Market Nearly Pricing In Two Fed Rate Hikes This Year, U.S. Treasury Yield Surge Weighing on Market Sentiment

BlockBeats News, June 25th. Tom Lee, Chairman of the largest Ethereum treasury BitMine, stated that the market is still digesting Kevin Warsh's remarks from last week's press conference and is repricing the macro environment. Over the past week, oil prices have fallen, and the war premium is shrinking. The current oil price is not too far from the pre-conflict level of about $65, indicating that the market believes the related war risk is declining. However, on the other hand, the 10-year U.S. Treasury yield is still rising, currently around 4.5%, higher than the pre-war level of about 4.2%. The main headwinds the market has recently faced have shifted from oil prices to yields.

Tom Lee pointed out that the market is not only focusing on the 10-year U.S. Treasury yield but is also beginning to price in the possibility of the Fed needing to raise interest rates. According to federal funds futures, the market is currently pricing in almost two rate hikes this year. Bank of America further predicts today that the Fed will raise interest rates three times this year, in September, October, and December.

Jeffrey Gundlach often emphasizes the importance of watching the 2-year U.S. Treasury yield, as it usually leads the Fed and suggests the direction of Fed policy. Between 2023 and 2025, the relationship between the 2-year Treasury yield and the federal funds rate had indicated that Fed policy was overly tight and needed to be loosened. However, this relationship has recently reversed, implying that the Fed needs to hike rates twice to catch up to the 2-year Treasury yield. He believes that, at least for now, yields have become a headwind for the market.