The US Treasury yield curve is approaching its steepest level in more than four years, with the yield on 10-year notes exceeding the yield on two-year notes by 73.7 basis points, amid the possibility that the Federal Reserve will cut interest rates. This development has been driven by a combination of anticipated interest-rate cuts, persistent inflation and fiscal deficit concerns. Traders are betting on two or three rate cuts this year, starting in June.

The sharp decline in software stock prices is reverberating through the debt market, with software-company bonds and loans experiencing notable price drops since the start of 2026. The average price of software loans in the Morningstar LSTA index has slipped from 94.71 cents at the end of 2025 to 90.51 cents. The downturn is raising alarms on Wall Street, as software sector weakness could spill over into other credit markets and potentially lead to increased loan defaults and outflows from loan funds.

Wall Street is undergoing a sweeping market selloff as investors move rapidly away from riskier assets. The S&P 500 fell for a third consecutive day, dropping 1.2%, while nine of 11 industry groups declined. The retreat has been driven by mounting anxieties over high valuations and questions over the sustainability of recent gains. News of significant job cuts and concerns about amounts spent on AI have intensified caution, leading to a pronounced shift toward defensive strategies and havens such as US Treasurys.

Amazon, Google and Microsoft have seen a combined market value drop of $900 billion after unveiling plans to spend $660 billion on AI this year. The increase in investment has raised concerns among investors who fear that the pace of spending far outstrips current AI revenue potential.

The Commodity Futures Trading Commission has withdrawn previous guidance and rulemaking on event contracts, citing the development of a compliant ecosystem for prediction markets. Chairman Michael Selig says the commission will introduce new rules that align with the Commodity Exchange Act and promote innovation.

Republicans are considering a long-term stopgap funding measure for the Department of Homeland Security as skepticism grows over reaching an immigration enforcement agreement with Democrats. Speaker Mike Johnson has rejected increasing warrant requirements and defended the use of masks in immigration enforcement, while Democrats are calling for bold changes and are unwilling to support another continuing resolution.

Regulators are signaling a heightened focus on prediction markets, with Manhattan US Attorney Jay Clayton confirming that enforcement actions are likely to follow the recent surge in trading activity. Clayton emphasized that operating outside traditional financial venues does not shield market participants from legal scrutiny, especially as prediction markets begin to resemble conventional securities products.

The Financial Stability Board has released a report highlighting vulnerabilities in repo markets backed by government bonds, which comprise about 80% of all repo trades. The report identifies risks such as leverage, demand-supply imbalances and market concentration, which could pose systemic threats. The FSB urges authorities to close data gaps, enhance surveillance and address liquidity and leverage issues to maintain market stability.

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