Bond Traders Eye Make-or-Break Data to Chart the Fed’s Next Move

(Bloomberg) — Bond traders are bracing for a deluge of data that will solidify expectations for how quickly the Federal Reserve will continue the interest-rate cuts that have driven US Treasuries to the biggest gains since 2020.

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The end of the government shutdown means that agencies will start releasing key reports that were held back since the start of October, including the September employment report on Thursday.

The lack of government data during the closure made it difficult to gauge the direction of the economy. Data from private data sources, like the payroll company ADP, however, continued to underscore the weakening in the job market that drove the Fed to lower its benchmark rate at the September and October meetings, ending what had been a nine-month pause.

But there’s a risk that the government’s figures may surprise to the upside by showing that businesses have been adding jobs at a stronger-than-expected pace. There’s also a chance that the data may be incomplete — or distorted — by the shutdown.

With policymakers still mindful of elevated inflation, that could cause them to hold rates steady at the Dec. 10 meeting or push back on the market’s expectations for 2026.

“As the economic data starts to trickle in, it is possible that the labor market shows more stability,” said Priya Misra, a portfolio manager at JPMorgan Investment Management. “Then the market might further take down odds of a December cut and volatility may rise.”

She said they see a buying opportunity in a rise in 10-year yields to 4.25% from Friday’s close of around 4.14%.

Treasuries rallied strongly this year as a slowdown in employment and President Donald Trump’s trade war sowed uncertainty in an economy that in recent years consistently surprised forecasters with its strength. After traders ratcheted up rate-cut bets and yields slid, Treasuries delivered a roughly 6% return this year.

But Fed Chair Jerome Powell has indicated the central bank’s recent moves were largely protective measures to ensure that its restrictive policy doesn’t stall growth, rather than an effort to jumpstart the economy.

Last week, futures traders pushed the odds of a quarter-point rate cut in December below 50% as some Fed officials indicated that such a move is far from a sure thing. That near-term uncertainty has driven up a gauge of expected bond-market volatility, which had been hovering around a four-year low.