US Bonds Stumble as Traders Debate Just How Much the Fed Can Cut

Key Points

  • Signs of exhaustion are emerging in the US bond market after its biggest weekly rally since August.
  • US Treasuries weakened in a volatile trading session on Monday, with yields briefly higher by at least 15 basis points.
  • Traders' expectations for Federal Reserve rate cuts fluctuated between three and five quarter-point cuts this year.
  • Fear of a global recession due to US tariffs led to sharp swings in the bond market.
  • JPMorgan Chase & Co. expects the US economy to fall into a recession this year, with the Fed cutting rates starting in June.

Summary

The US bond market is showing signs of exhaustion following its largest weekly rally since August, with a volatile trading session on Monday where US Treasuries weakened and yields across all maturities briefly rose by at least 15 basis points. This volatility comes amidst fluctuating expectations for Federal Reserve interest rate cuts, with traders now pricing in four quarter-point reductions this year, starting potentially in June. The market's turbulence is largely driven by fears of a global recession, triggered by US tariffs and uncertainty over their negotiation. Notably, yields on 30-year US bonds fluctuated significantly, ending the day 15 basis points higher. Amidst this, JPMorgan Chase & Co. predicts a US recession this year, with rate cuts expected at each subsequent Fed meeting through January. Meanwhile, Goldman Sachs has adjusted its forecasts to reflect three rate cuts by both the Federal Reserve and the European Central Bank. The overarching concern is how these tariffs might impact inflation and economic growth, with Bloomberg strategists suggesting that the Fed might soon be compelled to cut rates to prioritize economic stability over inflation control.

yahoo
April 7, 2025
Stocks
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