Bond traders are holding their breath ahead of a wave of economic data releases that could reshape expectations for the Federal Reserve's rate-cut trajectory. U.S. Treasuries have already posted their strongest gains since 2020 this year, fueled by growing anticipation of monetary easing.
With the U.S. government shutdown now over, agencies are rushing to release backlogged reports, including September employment figures due Thursday (November 20). The data vacuum during the shutdown left markets flying blind, though private-sector indicators like weak ADP payroll numbers had already prompted the Fed to cut rates twice in September and October—ending a nine-month pause.
However, official data carries upside risks: hiring may have exceeded expectations, while shutdown-related distortions could skew results. With policymakers still wary of persistent inflation, strong numbers might delay December rate cuts or temper 2026 easing expectations.
"As the data fog clears, labor markets may show unexpected resilience," said Priya Misra, portfolio manager at J.P. Morgan Investment Management. "This could further reduce December rate-cut odds and increase volatility." She noted that 10-year Treasury yields rising from Friday's 4.14% close to 4.25% would present buying opportunities.
This year's 6% Treasury rally reflects growing uncertainty about the economic outlook, as slowing job growth and Trump's trade wars cloud what had been surprisingly robust growth. Yet Fed Chair Powell has characterized recent cuts as "insurance" against overtightening rather than stimulus.
Futures markets now price less than 50% odds for a December cut after some Fed officials pushed back. This uncertainty has revived bond volatility measures from four-year lows.
"With questionable data quality and timeliness, markets increasingly fear the Fed may stand pat in December," said Jack McIntyre of Brandywine Global, who maintains neutral Treasury positioning given yield declines.
Bloomberg's Edward Harrison observes: "Bond markets clearly price in growth concerns—10-year yields at 4% despite 3% inflation suggest this. But for fixed-income investors, this may be the sweet spot, with tariff and shutdown headwinds potentially fading."
The timing remains unclear for delayed data releases, including November payrolls typically due in early December. While fund managers watch for yield-spiking catalysts like Supreme Court tariff rulings, most expect the Fed's easing bias to cap significant yield increases even if December action pauses.
Recent options trades bet on 10-year yields dipping below 4% from Friday's 4.1%+, while J.P. Morgan's latest client survey showed net long positions at April highs. New 10- and 30-year auctions met average demand.
"We'd need surprisingly strong economic data to break 2- and 10-year yields out of current ranges," said George Catrambone of DWS. "There's little evidence yet of labor market reacceleration."