Markets expect the Fed to cut its benchmark interest rate by more than 2% over the next 12 months

The rally in U.S. Treasuries extended on Tuesday, with the two-year yield falling to around 3.85% from more than 5% at the end of April. The rise over the past four months is the longest streak since 2021. The move comes as markets expect the Federal Reserve to cut its benchmark interest rate by more than two percentage points over the next 12 months, which would be the biggest cut outside of a downturn since the 1980s. For bond bulls, this poses a risk: If the labor market, which cooled sharply in July, still shows resilience, the Fed will be able to cut rates at a more moderate pace. The first big test will come on Friday, when the U.S. government releases nonfarm payrolls data for August. Economists expect the data to show a rebound in job growth and a decline in the unemployment rate. (Jinshi)