US Treasury prices continued to rise as investors found comfort in the Federal Reserve's commitment to reducing interest rates. The increase on Thursday led to yields on five-year notes dropping below 4% for the first time since mid-March, while activity in the options market suggested that traders anticipate further declines in the coming month. The two-year rate, which is particularly sensitive to monetary policy changes, fell to 3.96% after a seven basis points drop on Wednesday.

Traders have factored in approximately 66 basis points of rate cuts by the Fed by the end of the year, with the next adjustment anticipated in July. This movement follows the market response to the Fed's March meeting, where Chair Jerome Powell downplayed recession concerns but emphasized the uncertainty in the economic outlook. Investors have shifted their focus towards potential weaker growth outcomes rather than inflation worries.

In the options market, there has been significant buying interest aimed at achieving a yield decrease in five-year notes to around 3.55% by April 25, a level last seen in October. Open interest has increased for a sixth consecutive session in 10-year note futures, suggesting new long positions have been established post the Fed's announcement.

Powell's recent statements reinforced expectations of slowing US growth, temporary inflation upticks, and probable interest rate cuts before the year concludes. The market reacted to these comments following weeks of market turbulence as investors recalibrated their outlook amidst uncertainties surrounding Trump's trade policies and spending reductions. The Fed's decision to lower growth projections for the year aligned with existing concerns in the market. Speculation has arisen that the Fed might implement two interest rate cuts by 2025, as indicated in their latest forecasts.