A key Treasury yield gap has shrunk to its tightest level in a year as traders bet the Federal Reserve may keep interest rates higher for longer under new chairman Kevin Warsh. The narrowing spread reflects market expectations that the Fed will maintain its current stance longer than previously anticipated.

The spread between five-year and 30-year yields has compressed to about 81 basis points, the lowest since May 2025. This flattening curve shows how markets are pricing in a potentially more extended period of elevated borrowing costs across the yield spectrum.

The yield curve movement comes as Warsh prepares to take the helm at the central bank, with traders already positioning for a more hawkish approach. The current market pricing suggests investors expect fewer rate cuts this year than previously forecasted.