Economic data helps boost expectations for interest rate cuts, and US bonds are expected to see their first weekly increase since November.

Due to unexpectedly weak inflation data in the United States in November, and a surge in unemployment rate, the market expects the Federal Reserve to cut interest rates at least twice next year. US Treasury bonds are expected to see their first weekly rise since November last year. The 10-year US Treasury bond yield is expected to decrease by about 4 basis points this week, while the more policy-sensitive 2-year US Treasury bond yield is expected to decrease even more significantly as the market anticipates a more dovish policy direction in 2026. Although the market has been optimistic about further rate cuts after the Fed's rate cut last week, data shows that the US unemployment rate has reached its highest level in four years, and core inflation has reached its lowest annualized rate since the beginning of 2021, further fueling expectations. Anshul Pradhan, Director of US Rates Strategy at Barclays Bank, said, "Although the latest non-farm payrolls data may be more volatile than usual, considering the long government shutdown, a further rise in the unemployment rate will indicate that the pace of rate cuts should be faster than the currently priced speed." He recommends holding 2-year US Treasury bonds. The money market currently implies two rate cuts next year, each at 25 basis points, with a 40% chance of a third rate cut. The market expects further easing policies to widen the spread between 2-year and 10-year US Treasury bond yields to 67 basis points, reaching the largest closing price difference since January 2022. While the next major data release is not until January, Trump's announcement of Christmas Eve and December 26 as federal government holidays has brought uncertainty to the Treasury Department's debt auctions on December 24. However, the ICE BofA MOVE index, which measures expected volatility in the bond market, is at its lowest level since 2021, indicating that investors currently expect minimal volatility.