Investors are shifting toward shorter-dated US government bonds, betting the Federal Reserve will ultimately win its fight against inflation. Two-year yields have surged to a multi-year high of around 4.75% following the Fed's first rate increase since 2023. Futures are pricing in another 80 basis points of monetary policy tightening over the coming year, reflecting growing trader confidence in Chairman Kevin Warsh's commitment to aggressively combat inflation.

The selloff in underlying bonds marks the latest leg of a broader market repositioning as participants weigh the central bank's hawkish stance.