The last time U.S. government bonds sold off this much as the Federal Reserve started cutting interest rates, Alan Greenspan was orchestrating a rare soft landing.

Two-year yields have climbed 34 basis points since the Fed reduced interest rates on Sept. 18 for the first time since 2020. Yields rose similarly in 1995, when the Fed — led by Greenspan — managed to cool the economy without causing a recession. In prior rate cutting cycles going back to 1989, two-year yields on average fell 15 basis points one month after the Fed started slashing rates.

Rising yields “reflect the reduced probability of recession risks,” said Steven Zeng, an interest rate strategist at Deutsche Bank AG. “Data has come in pretty strong. The Fed may slow the pace of rate cuts.”

The backup in yields shows how a resilient U.S. economy and buoyant financial markets limit the options for Fed Chair Jerome Powell to aggressively cut rates. They also increase the odds for Powell to emulate Greenspan.

In 1995, Greenspan and his colleagues at the Fed slashed interest rates just three times – from 6% to 5.25% — in six months, after lifting them sharply. Yields on 10-year notes jumped more than 100 basis points 12 months later after the first cut that year, while two-year yields rose 90 basis points.

This time, rising yields also reflect growing concern that the Republican party could take control of both the White House and Congress in the Nov. 5 election, potentially boosting the federal deficit and inflation.

Interest swaps show traders are expecting the Fed to lower rates by 126 basis points through September 2025, compared with 195 basis points priced in about a month ago.

Yields on 10-year notes have surged to 4.2%, up from a 15-month low of 3.6% on Sept. 17, one day before the Fed lowered borrowing costs by 50 basis points. The rout has reduced Treasuries’ total return this year to 1.7% through Monday, trailing the 4.3% gained by T-bills, an equivalent to cash.