Markets Crumble as Traders Sharpen Bets on Fed Rate Cuts Amid Credit Stress

Investor sentiment deteriorated further Monday as global markets slumped, pushing up expectations that the Federal Reserve will be forced to ease policy aggressively to contain financial fallout.

Bitcoin (BTC) dropped 8% to $75,800, while the S&P 500 futures extended their sharp sell-off, losing nearly 5% in early trading. This brings the benchmark U.S. index’s three-day decline to nearly 15%, highlighting a risk-off shift that’s rattled both traditional and digital asset markets.

In response, traders are increasingly wagering on a pivot from the Fed. Fed funds futures now reflect growing confidence in a rapid policy turnaround, with as many as five rate cuts priced in for 2025. For the upcoming May 7 FOMC meeting, odds of a 25 basis point reduction have risen to 61%, CME FedWatch data shows. By year’s end, markets anticipate the policy rate could drop to a range of 3.00%–3.25%.

While recession fears and financial instability drive expectations, falling yields may also serve a political purpose. The benchmark 10-year U.S. Treasury yield has fallen to 3.923%, easing the refinancing burden for the U.S. government as it prepares to roll over large volumes of debt.

The pressure comes after a structural shift in Treasury issuance under former Secretary Janet Yellen, who emphasized short-term borrowing. Roughly two-thirds of deficit financing since 2023 has come via Treasury bills, now carrying higher costs amid elevated short-term rates. That strategy is now backfiring, creating urgency to refinance quickly — and cheaply.

For the Trump administration, lower yields may be a welcome development. But for investors, the near-term outlook remains murky as rate cut hopes collide with the reality of persistent volatility.