Trump 2.0 triggers inflation worries, traders are downbeat about the outlook for the US bond market this year.

With a series of strong economic data, the Republican Party led by Trump winning big in the election, and the cautious attitude of Federal Reserve officials causing investors to adjust their expectations for Fed policy, the US Treasury market is weak. Rate expectations adjustments have the biggest impact on long-term bonds, with the 10-year US Treasury yield rising to nearly 4.6%, about a full percentage point higher than when the Fed first began cutting rates in September last year. The impact on 2-year US Treasury bonds is relatively small, reflecting investors turning to short-term securities less affected by changes in Fed policy rates and longer-term prospects. The resilience of the US economy and Trump's tax and tariff policies put pressure on US Treasury bonds. Priya Misra, a portfolio manager at JPMorgan Asset Management, said, "The market has a lot of concerns about inflation (tariffs, fiscal stimulus, immigration) and some optimism about economic growth (fiscal stimulus, deregulation), which explains the rate fluctuations over the past few months." The pessimistic outlook for the bond market signals a shift from the early 2024, when many on Wall Street expected a steady year of growth in the bond market once the Fed started pulling rates back from their highs of over 20 years. However, these expectations have proven to be unrealistic, leading investors to hesitate to bet on a bond market rebound even as the economy continues to grow. Meanwhile, Trump's tax and tariff plans could increase fiscal stimulus and raise import prices, exacerbating inflationary pressures. Increasing deficits will also increase the supply of US Treasuries. Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, said that sticking to shorter duration bonds is currently a good strategy. He said, "It's better to stay cautious even though yields have risen a lot before you see any pain in the economy." Currently, futures traders expect the Fed to keep rates unchanged before June and may only cut rates by 50 basis points in 2025 for the full year. Bloomberg strategist Ven Ram said that Trump's remarks could trigger selling of US Treasuries, and any surge in yields could be limited to 30 basis points, keeping yields below 5%. With the market closed on Thursday to commemorate the passing of former US president Jimmy Carter, the market will see a test of demand in a series of US Treasury sales starting on Monday. This auction will include new 10-year and 30-year US Treasury bonds. Additionally, on Friday, the US Labor Department will release the monthly non-farm employment report; economists expect an increase of 160,000 jobs in December, slightly lower than the previous month's 227,000. Misra of JPMorgan said that with yields already rising so much, a sharper-than-expected slowdown in job growth could lead to a bond price rebound. She pointed out that weak data would spark discussions about a Fed rate cut in March.