<\/p>\n
Photographer: Jamie Kelter Davis\/Bloomberg<\/p>\n
(Bloomberg) — Bond investors\u2019 overarching wager on the path of the Federal Reserve and the Treasuries market in 2026 looks like it has room to run.<\/p>\n
Most Read from Bloomberg<\/p>\n
A much-anticipated employment report on Friday showed job growth was below forecasts last month, leaving intact expectations for additional Fed interest-rate cuts to support the economy. The result confirmed confidence in bets that short-maturity Treasuries, which are the most sensitive to the central bank\u2019s policy, will outpace their longer-term counterparts this year, widening the yield gap between those maturities.<\/p>\n
The steepener trade, as the position is dubbed, was one of the hottest bond strategies for much of 2025, drawing in fixed-income giant Pimco, among others, and it worked to start 2026 as well. The gap between 2- and 10-year Treasury yields reached the largest in almost nine months last week.<\/p>\n
\u201cWe\u2019re longer-term investors, and over the next 12 to 24 months there\u2019s a lot of scenarios where a steepener is going to work out well,\u201d said Pramod Atluri, a fixed-income portfolio manager at Capital Group.<\/p>\n
The yield curve steepened further Monday, led by a selloff at the long-end, after Federal Reserve Chair Jerome Powell said the US central bank had been served grand jury subpoenas from the Justice Department, threatening a criminal indictment.<\/p>\n
The 30-year yield rose five basis points to 4.86%, while the two-year yield fell one basis point to 3.53%, as the DOJ\u2019s actions revived debate over just how far the US president can and should influence the nation\u2019s rate stance.<\/p>\n
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The moves have followed an eventful stretch for the steepener strategy. Traders had been on alert Friday for a possible Supreme Court ruling on challenges to President Donald Trump\u2019s tariffs. As it turned out, the court didn\u2019t issue an opinion. But a potential decision against Trump is expected to put pressure on Treasuries given the revenue the levies generate. Investors also absorbed Trump\u2019s request that Fannie Mae and Freddie Mac buy $200 billion in mortgage bonds.<\/p>\n
Inflation Hurdle<\/p>\n
For data, the focus turns to Tuesday, with the release of December consumer-price figures. The report is projected to show that inflation remained elevated, backing the case for the Fed to pause.<\/p>\n
After three rate cuts by the central bank since September, traders see the next reduction in mid-2026, with another to follow in the fourth quarter. Changing expectations around that timing will continue to buffet bets on a wider yield-curve gap.<\/p>\n
Story Continues <\/p>\n
For Subadra Rajappa, head of US rates strategy at Societe Generale, momentum for the trade is waning.<\/p>\n
\u201cI don\u2019t see much room for the curve to continue to steepen,\u201d she said. \u201cA stable labor market and sticky inflation argue for fewer cuts.\u201d<\/p>\n
Of note, Friday\u2019s report also showed the jobless rate fell in December. That wiped out considerations of a rate cut this month and caused the curve wager to unwind some. The difference between 2- and 10-year yields shrank to its smallest since year-end.<\/p>\n
Broadly speaking, however, it\u2019s still a favored strategy for US bond managers. A JPMorgan Chase & Co. analysis of the 25 largest active core bond funds shows that exposure to the position remains large from a historical perspective, although they\u2019ve reduced some exposure since late last year.<\/p>\n
Timing Question<\/p>\n
The question of timing is key, said Brian Quigley, senior portfolio manager at Vanguard. <\/p>\n
\u201cWe are pretty neutral on rates, and the only trade we have liked entering the year is a curve-steepener,\u201d he said.<\/p>\n
The money manager expected global investors to require higher yields on longer maturities at the start of the year given that there\u2019s been a flood of bond sales. There\u2019s also a combined $61 billion of 10- and 30-year Treasury auctions ahead this week, which may weigh on those maturities.<\/p>\n
Capital Group\u2019s Atluri, for his part, is positioning for a steeper curve by overweighting shorter maturities. He sees that approach panning out in any sort of broad \u201crisk-off\u201d move in credit or equities markets that leads traders to bet on deeper Fed cuts. It would also work if signs of healthy growth cause long-term yields to rise, or if deficit worries mount, he said.<\/p>\n
What Bloomberg strategists say…<\/p>\n
Employment trends are behaving like the economy is heading into recession. That explains why traders are still betting on further easing from the Fed, even as any hopes for a January move have now been dispelled. Altogether, the push-pull between these conflicting signals leaves bond traders with little clarity on the path of yields, especially as supply risks and December CPI also loom.<\/p>\n
\u2014Tatiana Darie, macro strategist, Markets Live. For the full analysis, click here.<\/p>\n
Concerns around government spending will be on traders\u2019 minds as they await the eventual release of the Supreme Court\u2019s decision on tariffs. The court said Wednesday will be its next opinion day.<\/p>\n
Some traders see a more complicated narrative around a ruling against the levies, beyond adding to angst around the risk of a swelling deficit that leads to heftier Treasury auctions.<\/p>\n
John Brady, managing director at RJ O\u2019Brien, sees another angle emerging: that a lighter slate of tariffs initially reduces worries that the levies will fuel inflation. That interpretation could support longer maturities and dash bets on a wider yield-curve gap.<\/p>\n
However, even that view has a flip side.<\/p>\n
After all, Fed Chair Jerome Powell\u2019s term ends in May, and investors are eyeing the prospect that Trump chooses a successor who may be more inclined to ease rates faster, especially if inflation is cooling.<\/p>\n
\u201cThe market will likely price in a third rate cut this year\u201d in that scenario, said Tony Rodriguez, head of fixed-income strategy at Nuveen.<\/p>\n
What to Watch<\/p>\n
(Adds details of subpoenas served to Federal Reserve by the US Justice Department from paragraph five.)<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"Photographer: Jamie Kelter Davis\/Bloomberg (Bloomberg) — Bond investors\u2019 overarching wager on the path of the Federal Reserve and…\n","protected":false},"author":3,"featured_media":513226,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[3638,97156,64,1597,142,229341,5005,67,132,68],"class_list":{"0":"post-513225","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-bloomberg","9":"tag-bond-investors","10":"tag-business","11":"tag-federal-reserve","12":"tag-jerome-powell","13":"tag-maturities","14":"tag-president-donald-trump","15":"tag-united-states","16":"tag-unitedstates","17":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115888202911072484","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/513225","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=513225"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/513225\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/513226"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=513225"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=513225"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=513225"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}