US bond market investors' 2026 betting strategy continues to deepen, with room for yield curve shape adjustments to be explored

Faced with the uncertainty of the Federal Reserve’s future policy direction, bond investors are increasingly contemplating long-term allocations in the U.S. bond market. Last week’s non-farm payroll data fell below market expectations, further reinforcing market confidence in the Fed’s continued rate cut cycle, providing new ideas for bond trading strategies.

The latest market response shows that investors are increasingly optimistic about the relative performance of short-term government bonds compared to long-term bonds this year, driving the yield spread between the two types of bonds to gradually widen. This divergence trend stems from differing expectations of the Fed’s policy pace and also reflects market participants re-evaluating the interest rate trajectory for 2026.

Pramod Atrurri, head of fixed income portfolio management at Capital Group, pointed out that over the next 12 to 24 months, there are multiple favorable market scenarios for steepening the yield curve trade. This means bond investors have ample reason to remain optimistic about the widening of the long-short spread.

Research on the 25 largest actively managed core bond funds tracked by J.P. Morgan reveals that, based on historical performance, these funds still maintain relatively high positions in yield curve trades. This indicates that professional institutional investors are still actively deploying this strategy, and structural opportunities in the U.S. bond market still have room for further development.