The bond market will add to the more interesting start to the new year

The bond market is poised to have an interesting start to the new year, particularly with the Fed potentially moving towards a dovish policy by 2026. Currently, 10-year Treasury yields are rising to around 4.18%, nearing a critical resistance level at 4.20%, which has held since September. Meanwhile, 30-year yields have surged to 4.87%, the highest since early September. This increase is attributed to the substantial debt issuance under the Trump administration, flooding the market with bonds and pushing yields up despite cooling economic data. This fiscal pressure might lead to heightened risk aversion in the markets as 30-year yields approach the 5% mark. Therefore, while equities show some optimism, vigilance is warranted in the bond space.