Credit Markets Sound the Alarm as Traders Bet on Five Fed Rate Cuts in 2025
Mounting financial instability is prompting investors to price in aggressive monetary easing from the Federal Reserve, as risk assets spiral and confidence erodes.
Bitcoin fell sharply to $75,800 on Monday, registering an 8% daily loss. U.S. equity markets fared no better, with S&P 500 futures plunging 5% in morning trade and cumulative losses over three days nearing 15% — one of the steepest declines in recent years.
In response, interest rate traders are positioning for a dovish pivot. According to the CME FedWatch Tool, market participants now expect up to five rate cuts this year, with a 61% probability of a 25 basis point reduction as soon as the Fed’s May 7 meeting. By December, traders anticipate the federal funds target range could fall to between 3.00% and 3.25%.
The collapse in Treasury yields supports this outlook. The 10-year note, a bellwether for borrowing costs across the economy, has dropped to 3.923%, reinforcing the narrative that financial conditions are tightening too rapidly for the Fed to remain on the sidelines.
This yield compression is also advantageous for the Treasury, which faces a towering wave of refinancing in the months ahead. Following a structural shift under former Treasury Secretary Janet Yellen, the U.S. increasingly relied on short-term bills — with elevated interest costs — to cover deficits. That short-duration profile now leaves the Treasury exposed to rollover risk unless borrowing costs fall quickly.
Some analysts suggest that the ongoing market correction may be tolerated — or even welcomed — by the Trump administration if it accelerates the decline in yields. Whether the Fed validates market expectations with a formal policy shift remains to be seen, but for now, the bond market is taking the lead.
