Bond traders are piling into bets that the US economy is on the verge of deteriorating so quickly that the Federal Reserve will need to start easing monetary policy aggressively - potentially before their next scheduled meeting - to head off a recession.

Previous worries about the risk of elevated inflation have virtually disappeared, swiftly giving way to speculation that growth will stall unless the central bank starts pulling interest rates down from a more than two-decade high. Traders now see a roughly 60% chance of an emergency quarter-point cut within one week.

That is fueling one of the biggest bond-market rallies since fears of a banking crisis flared in March 2023. The advance has been so strong that the policy sensitive two-year Treasury yield tumbled last week by half a percentage point to less than 3.9%. It hasn't been that far below the Fed's benchmark rate — now around 5.3% — since the global financial crisis or the aftermath of the dot-com crash.