The US bond market is sending a clear signal to the Federal Reserve in Washington: interest rates are not high enough.

The $31 trillion US Treasury market sent a clear message to the Federal Reserve's Kevin Warsh: interest rates are not high enough. The yield on the sensitive US 2-year bonds rose to its highest level in over a year, as a series of economic data had traders expecting the Fed to raise rates by at least 0.25 percentage points as early as October. Currently, the yield on 2-year bonds is around 4.15%, well above the Fed's policy rate range of 3.5% to 3.75%, a discrepancy that began in March. Last week's data showed non-farm payrolls exceeded all expectations, leading the market to believe that the Fed will consider raising rates this year to curb inflation and mitigate the risks of an overheating economy due to the AI boom. The consumer and wholesale price reports for May, set to be released later this week, are expected to further support this view. "Tell me where rates are beginning to have a restraining effect," said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. "Yields on US Treasuries are likely to continue to rise before any issues arise in certain sectors."