Bond Market Braces for Pivotal Data That Could Steer the Fed’s Path

Bond investors are gearing up for a rush of economic releases that should clarify how aggressively the Federal Reserve plans to continue cutting interest rates a trend that has powered the strongest Treasury rally since 2020. With the government shutdown now resolved, federal agencies are preparing to publish the reports that have been on hold since early October, starting with the September jobs data set for release on Thursday.

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The absence of official figures during the shutdown left markets without a clear read on the economy’s direction. Private-sector data, including numbers from payroll provider ADP, filled part of the gap and continued to highlight the cooling labor market that pushed the Fed to trim rates in September and October, breaking a nine-month hold on policy moves.

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Still, traders are aware that the government’s delayed reports could deliver a surprise potentially showing that hiring was stronger than anticipated. There’s also a risk that the data could be incomplete or skewed because of the shutdown’s timing.

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If inflation pressures remain on policymakers’ minds, an unexpectedly strong jobs print could make officials hesitant to cut again at the Dec. 10 meeting or even encourage them to challenge expectations for additional easing in 2026.

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“As the government numbers begin to roll out, it’s possible we see signs of a steadier labor market,” said Priya Misra, portfolio manager at JPMorgan Investment Management. “If that happens, traders may further dial back the odds of a December rate cut, which could fuel more volatility.” Misra noted that her team sees value in adding exposure if the 10-year yield climbs toward 4.25%, up from its recent close near 4.14%.

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Treasuries have been on a tear this year, fueled by slowing job growth and ongoing uncertainty surrounding President Donald Trump’s trade policies. As investors leaned more heavily into rate-cut bets and yields declined, the asset class delivered returns of about 6% year-to-date. Fed Chair Jerome Powell, however, has emphasized that the central bank’s recent rate reductions are aimed more at preventing restrictive policy from stifling growth than at stimulating the economy outright.

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Last week, futures markets marked down the probability of a quarter-point cut in December to below 50%, following comments from several Fed officials who signaled that additional easing is far from guaranteed. That shift in sentiment helped elevate a closely watched measure of expected bond-market volatility, which had recently hovered near a four-year low.

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“There’s some growing unease though not yet a major concern that the Fed may choose not to move in December, depending on how timely and reliable the incoming data is,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. Combined with the recent dip in yields, he said, that uncertainty “keeps us leaning toward a neutral position in Treasuries.”

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The schedule for the government’s backlog of economic releases remains unclear, including the November jobs report that typically arrives in the first week of the month. The Labor Department indicated last week that it may need additional time to finalize publication dates.

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Fund managers are also watching for developments that could push yields higher, such as the recent Supreme Court decision striking down Trump’s tariffs. Even so, most expect the Fed to maintain an overall easing tilt even if it opts to hold steady next month which should help keep yields from drifting too far above current levels. Market sentiment has stayed broadly supportive of Treasuries as the data continues to reflect a gradual cooling in economic activity.

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Some investors are already positioning for further declines in long-term yields. Recent Treasury options trades have targeted a drop in the 10-year yield below 4%, down from just above 4.1% at the end of last week. JPMorgan Chase & Co.’s client survey for the week ending Nov. 10 showed the largest net long positioning in Treasuries since early April. Demand for the government’s latest auctions of 10- and 30-year notes also aligned well with recent norms, underscoring steady investor appetite.

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“To push two- and 10-year yields out of their current ranges, we’d need to see a meaningful resurgence in growth and hiring,” said George Catrambone, head of fixed income at DWS Americas. “Right now, there’s no clear catalyst pointing to a sharp recovery in the labor market.”

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