Bond traders are betting that U.S. President Donald Trump’s sweeping tariff policies will trigger a slowdown in job growth, boosting the likelihood of multiple Federal Reserve rate cuts in 2025. Ahead of Friday’s pivotal non-farm payrolls report, money markets are pricing in nearly four quarter-point cuts this year — one more than before Trump’s April tariff escalation.
📉 Short-Term Treasuries Rally as Growth Concerns Rise
Investor positioning in U.S. Treasuries reflects deepening pessimism about near-term growth. Data from Wednesday shows increased long positions in short-dated Treasuries, a signal that traders expect economic damage from tariffs to outweigh any inflation spike. The two- and five-year notes have sharply outperformed the 30-year bond, steepening the yield curve.
🛠️ Jobs Report in Focus as Markets Seek Clarity
The April jobs report is being closely watched for early signs of labor market stress from tariff uncertainty. Economists forecast 135,000 new jobs — down from 228,000 in March — with markets keen to assess whether the slowdown is temporary or the start of a broader downturn.
“The labor market slowing down is necessary for the Fed to continue their easing process,” said Gargi Chaudhuri of BlackRock, emphasizing that sustained weakness — not just one soft print — will be needed to justify further rate cuts.
🏦 Fed Rate Cut Bets Accelerate Despite Mixed Data
Fed officials, currently in a communications blackout before their May 6 meeting, have maintained a cautious stance. However, futures markets have priced in a 100-basis-point reduction by year-end, with the first cut expected in June. That’s a sharp increase from just two expected cuts in mid-March.
Even with stronger-than-expected manufacturing data earlier this week, fears of a slowdown persist. Consumer confidence hit a five-year low in April, and manufacturing activity contracted at its fastest pace in five months.
🌐 Global Trade Uncertainty Adds Volatility
Uncertainty surrounding the final scope of U.S. tariffs and ongoing trade negotiations with China and Japan is compounding market volatility. China has signaled a possible return to talks, while Japan expects progress later this month. Japan’s finance minister even hinted at using its $1.1 trillion in U.S. Treasury holdings as potential leverage.
📊 Labor Market at a Crossroads
With Fed Governor Christopher Waller signaling rate cuts would be justified by rising unemployment, bond investors are scrutinizing any signs of labor weakness. The April payroll data — collected shortly after Trump’s tariff hikes — could mark “the last solid reading before the storm,” according to Bloomberg Economics.
