Trump's policies are constantly changing, and bond traders are beginning to bet on "US recession."

Bond traders believe that the risk of a stagnant U.S. economy is increasing, as President Donald Trump's chaotic tariffs and federal government shutdown measures may further suppress the pace of economic growth. Less than two months into Trump's presidency, speculation about his stimulus measures to expand the U.S. economy and continue to raise U.S. bond yields has quickly been pushed aside by the market. Instead, traders have flocked to short-term U.S. bonds, causing the two-year U.S. bond yield to plummet significantly since mid-February, as the market anticipates the earliest Federal Reserve rate cut in May to prevent further economic deterioration. Gennadiy Goldberg, head of U.S. rate strategy at TD Securities, said, "Just a few weeks ago, we were being asked if the U.S. economy was picking up steam again, and now suddenly, the word 'recession' is being thrown around repeatedly. The market has shifted from bullishness on growth to despair." This change signals a sharp shift in the U.S. bond market. For the past few years, the main driver of the U.S. bond market has been the remarkable resilience of the U.S. economy, despite slowing growth overseas. Investors initially bet that Trump's victory would strengthen this trend, and in late last year, they significantly raised yields in anticipation of accelerating economic growth and inflation. However, since mid-February, due to the significant uncertainty brought by the policies of the new Trump administration, U.S. bond yields have declined. The yield curve has steepened, which usually occurs when investors believe the Federal Reserve will begin easing monetary policy to stimulate economic growth. One key factor is the trade war brewing under Trump, which could lead to another inflation shock and disrupt global supply chains. This triggered sell-offs in the U.S. stock market last week, even as Trump once again delayed imposing tariffs on Mexico and Canada. The government withholding federal funds and dismissing tens of thousands of government employees have exacerbated the sell-offs. Tracy Chen, portfolio manager at Brandywine Global Investment Management, said, "With Trump's policy sequence - tariffs first, then tax cuts, the risk of economic recession is certainly higher." Currently, the market expects the Federal Reserve to cut rates by 75 basis points this year, which is not enough to indicate that the Fed is entering recession-fighting mode. Federal Reserve Chair Powell said last Friday that he is not in a rush to return to loose policy, stating that despite rising levels of uncertainty, the economy is still in good shape. In addition, inflation may put upward pressure on yields, with reports expected to show that the U.S. consumer price index rose 2.9% year-over-year in February, continuing to exceed the Fed's 2% target. However, signs of economic cooling continue to mount, such as the GDPNow indicator from the Atlanta Fed showing that U.S. GDP will shrink in the first quarter. Despite the Labor Department's report stating that job growth remained steady in February, it also provided evidence of a softening labor market, with an increase in the number of people permanently unemployed, a decrease in federal government employees, and an increase in the number of people working part-time for economic reasons. The direction of the bond market will largely depend on Trump's policy direction in the coming months. U.S. Treasury Secretary Steven Mnuchin admitted last Friday that the economy may be disrupted by the policies of the Trump administration, but he remains confident in the long-term outlook. Last Thursday, Trump seemed to respond to concerns about drastic government cost-cutting by instructing cabinet members to use a "surgical knife" rather than an "axe" when downsizing. As the U.S. stock market plummeted, he once again postponed tariffs on Mexico and Canada for another month, although he still plans to impose tariffs on other countries. Chen of Brandywine said, "Before this tariff war, the market believed tariffs would lead to inflation, and now people believe tariffs will lead to recession. So this is a huge shift."