Falling inflation expectations drive bond yields lower, with the probability of the 10-year U.S. Treasury breaking 4% increasing

The market generally expects the 10-year U.S. Treasury yield to fall below 4% in the near term

Based on changes in options market positioning, investor confidence in rising bond prices is strengthening. The latest March options data shows large buy orders targeting yields to further decline from the current below 4.2% to around 3.95%, reflecting strong market optimism about the downward trend in interest rates.

**Trade impact less than expected, easing inflation becomes new consensus**

Recent economic data reveal an interesting phenomenon: despite the implementation of new tariffs in the U.S., their actual impact on inflation has been much lower than initial market expectations. According to joint research by the San Francisco Fed and Northwestern University, tariff revenues peaked at $34.2 billion in 2025 before beginning to weaken, falling to $30.2 billion by December.

This revenue decline is driven by importers adjusting strategies to avoid tariffs, directly easing imported inflation pressures. The most direct evidence is that the U.S. November unadjusted CPI year-over-year rose only 2.7%, well below the expected 3.1%. Coupled with downward pressure on oil prices and increased Venezuelan oil supply potentially intensifying competition in the international oil market, the market expects inflation to continue to moderate.

**Bond yields have room to decline**

Supported by expectations of easing inflation, long-term bond yields face significant downward pressure. The Federal Reserve continues its rate-cut cycle, with officials indicating that further rate reductions may be needed to support economic growth. Additionally, global geopolitical uncertainties are prompting capital inflows into U.S. Treasuries for safety, increasing the likelihood of further declines in the 10-year Treasury yield.

**Labor market data will be key**

This week, U.S. economic data will be released intensively. Wednesday’s JOLTS job openings and ADP employment reports, along with Friday’s non-farm payrolls, will directly influence market perceptions of economic outlook. Notably, despite a 64,000 increase in non-farm employment in November, the unemployment rate jumped to 4.6%, the highest since 2021. This contradictory phenomenon reflects the labor market facing adjustment pressures.

In the short term, influenced by the AI wave and tariffs, the employment market may experience a slowdown in hiring and layoffs simultaneously. Nonetheless, as long as the overall non-farm data does not significantly underperform expectations, the market may interpret it as a “just right” signal of economic moderation.

**Optimism in technology continues to support risk assets**

Positive developments in the tech sector provide important support for market confidence. Leaders in related tech companies express optimism about future business prospects, with major client orders exceeding expectations and hinting at further upward revisions of revenue targets. Meanwhile, industry insiders point out that global computing capacity still has a huge gap, and over the next five years, a hundredfold expansion may be needed, providing fundamental support for long-term growth in the tech industry.

**Market outlook: U.S. stocks, commodities, and precious metals are expected to continue rising**

Considering multiple current factors: easing inflation lays the foundation for bond yields to decline, the Federal Reserve’s accommodative policy path is clear, and the tech industry outlook remains optimistic with strong fundamentals. If this week’s labor market data does not show significant shocks, the market is likely to remain cautiously optimistic about the economic outlook, further supporting continued gains in U.S. stocks, precious metals, and commodities. The probability of the 10-year U.S. Treasury yield breaking 4% is increasing, which will further enhance the relative attractiveness of risk assets.