Market expectations are that the Federal Reserve will lower the benchmark interest rate by more than 2% within the next 12 months

The upward trend of U.S. bonds continued on Tuesday, with the yield on two-year U.S. bonds falling from over 5% at the end of April to around 3.85%. The rise in the past four months is the longest continuous increase since 2021. This move is due to market expectations that the Federal Reserve will cut its benchmark interest rate by more than two percentage points within the next 12 months, which would be the largest cut outside of economic downturns since the 1980s. For those bullish on bonds, this poses a risk: if July's significantly cooled labor market can still show resilience, then Fed could lower interest rates at a more moderate pace. The first major test will be announced on Friday when US government releases non-farm employment data for August. Economists predict that this data will show a rebound in job growth and a decrease in unemployment rate.