## Two Unknowns Threaten Bond Market Stability: Employment Report and Tariff Ruling

Friday will bring a moment of truth for bond traders. Two key events — the Supreme Court decision regarding administration tariffs and the release of US employment data — could interrupt months of relative calm in the $30 trillion government debt market. The yield on 10-year US Treasury bonds has been trading within a narrow range between 4.1% and 4.2% for weeks, suggesting a lack of consensus among investors about the future.

### Tariffs at a judicial crossroads — what will threaten bonds?

The first variable the markets are watching is the potential Supreme Court ruling on the legality of tariffs imposed by President Trump. During hearings on November 5, justices expressed doubts about executive authority in this matter. If the court rules against tariffs, the consequences could be significant — a loss of revenue would force the government to borrow more, which under pressure could push the yield on 10-year US Treasuries higher.

On the predictive platform Kalshi, the probability that the ruling will find tariffs lawful is estimated at just 28%. Has the market already priced in this risk? Not necessarily. The administration may seek alternative legal grounds to reinstate tariffs, which would limit the direct impact on the yield of 10-year US bonds and prevent a full budget deficit.

### Employment report — a key indicator for the Fed

At 8:30 AM in Washington, we will learn December employment data. Economists expect an increase of 70,000 non-farm jobs and a decrease in the unemployment rate to 4.5%. These may seem like modest numbers, but for the Federal Reserve, they are a signal to watch.

Only 10% of traders price in a chance of a rate cut this month. If the report disappoints and shows a near-zero increase in employment, this chance could rise to 50%, likely lowering the yield on 10-year US Treasuries and across the entire yield curve. Gregory Faranello of AmeriVet Securities emphasizes that ultimately, everything depends on the quality of employment data.

### After three rate cuts — what to expect next?

Last year, Treasury bonds returned over 6% — the best performance in seven years — thanks to three rate reductions by the Fed. Traders now assume the next rate cut will most likely happen in June, after Jerome Powell’s term as Fed Chair ends.

Zach Griffiths from macroeconomic strategy at CreditSights notes: “Markets have become overconfident due to a lack of real economic impulses. Friday will change that.”

### Volatility returns — are you prepared?

JPMorgan Chase analysts, including Jay Barry, forecast that even the removal of tariffs would only bring moderate increases in long-term yields, as the administration is ready for legal actions. However, the combination of uncertainty — both from the court and employment data — suggests that the expected volatility should return to the US bond market after weeks of stagnation.

The yield on 10-year US Treasuries could be at the center of market turbulence today. Prepare for movement.