Can Tuesday's employment data and court ruling reignite the turmoil in the US bond market?

Serious Challenges to U.S. Bond Yields Await on Friday

The $30 trillion U.S. government debt market is gearing up for a potentially turbulent Friday. After weeks of relative calm, investors face two major catalysts: a Supreme Court ruling that could change the outlook on presidential trade tariffs and the release of December employment data, which could determine the Federal Reserve’s next steps.

The Biggest Uncertainty: What Will the Ruling on Tariffs Decide?

The first key decision concerns the legality of tariffs imposed by the administration. During hearings in November, judges expressed skepticism about the president’s authority based on the 1977 law. If the Supreme Court rules against the tariffs — which have so far generated significant budget revenue — the market could react sharply.

The last time the judges appeared opposed to this stance was on November 5, (, when long-term bonds suffered the most. Speculation about declining budget revenues and the need for higher national debt put pressure on their prices. However, JPMorgan Chase & Co. experts, including Jay Barry, estimate that the administration will seek alternative legal grounds to reinstate most tariffs, which could mitigate the market impact.

On the Kalshi prediction platform, participants estimate only a 28% probability of the court maintaining the tariffs and a 40% chance of an immediate return of collected revenues.

Employment Report: Unexpected Weakness or Confirmation of Stability?

The second issue that will catch investors’ attention is the release of December labor market data )8:30 a.m. Washington time(. Bloomberg analyzes economists’ forecasts — the number of new non-farm jobs is expected to increase by 70,000, compared to a 64,000 rise in November, and the unemployment rate is expected to fall from 4.6% to 4.5%.

A weak data scenario — showing little or no employment growth — could dramatically change market expectations. Gregory Faranello of AmeriVet Securities points out that in such a case, the chances of a rate cut in January could rise to 50%. Currently, traders price only a 10% probability of such a reduction.

The future of U.S. bond yields also depends on the Fed’s policy outlook. Last year, bonds yielded 6% — the best since 2020 — thanks to three consecutive quarter-point rate cuts. The market expects another cut only in June, after Jerome Powell’s term ends, with a possible third later in the year.

What Scenario Awaits U.S. Bond Yields This Week?

Zach Griffiths from macroeconomic and high-rated investment strategy at CreditSights points to a return of volatility. “Markets have been reckless due to the lack of economic data releases. That will change,” says the analyst.

Currently, the yield on 10-year notes hovers in a narrow range of 4.1-4.2%. If employment data disappoints, yields across all maturities could fall, with short-term yields potentially remaining more resilient — leading to a steepening of the yield curve.

A scenario where the court rules in favor of tariffs would have the opposite effect: an increase in long-term U.S. bond yields and a shift in the yield curve toward a steeper slope due to concerns about the country’s fiscal balance.

Conclusion: Different Paths for Bond Yields

Friday’s combination of two major events will test a market that has been in balance for many weeks. A relatively stable employment report combined with an unfavorable ruling on tariffs could result in a net positive for U.S. bond yields — a decline in yields amid increased fiscal stress — a scenario investors should prepare for.