Market Meltdown: Is Mounting Credit Stress Cornering the Fed?

Credit Markets Cry for Help as Sell-Off Deepens, Fed Pivot Bets Accelerate

With markets spiraling, investors are now banking on the Federal Reserve to intervene — and soon.

Bitcoin sank 8% to $75,800 on Monday, while U.S. equities continued their plunge. S&P 500 futures dropped nearly 5% on the day, marking a three-day slide approaching 15% — one of the steepest since the pandemic-era shocks.

As the carnage spreads, bond traders are ramping up bets that the Fed will cut rates to cushion the blow. According to CME’s FedWatch Tool, the market is now pricing in as many as five rate cuts for 2025. The odds of a 25 basis point cut at the Fed’s May 7 meeting currently sit at 61%, potentially bringing the policy rate down to a 4.25%–4.50% range. By year-end, futures suggest the benchmark could dip as low as 3.00%–3.25%.

This risk-off wave, fueled by growth concerns and global instability, may ironically serve the Trump administration’s objectives. Treasury yields — especially the critical 10-year — have plunged to 3.923%, easing pressure on government debt refinancing.

Much of that refinancing stress stems from a shift in debt strategy under former Treasury Secretary Janet Yellen, who pivoted away from long-term bonds in favor of short-term Treasury bills. While this move initially kept borrowing costs lower, it left the government more exposed. Now, with around two-thirds of recent deficits funded via short-term paper, and interest rates still elevated, the refinancing burden is growing more acute.

The result: a ticking time bomb of short-dated debt and rising pressure on the Fed to deliver rate relief — not just for markets, but for Washington’s balance sheet.