Wall Street listens to the information from the Federal Reserve. They predict that even if Trump's trade and tax policies pose risks to the bond market, short-term US Treasury yields will still decline by 2025.

The forecasts from strategists are largely consistent, indicating that the yields on 2-year Treasury bonds, which are more sensitive to Federal Reserve interest rate policies, will decrease. They also expect that the yields will decline by at least 0.5 percentage points from current levels in 12 months.

David Kelly and others from the Morgan Asset Management team stated: "Although investors may be shortsightedly focused on the speed and magnitude of rate cuts next year, they should also take a step back and think about the fact that the Federal Reserve is still on a rate-cutting trajectory in 2025."

However, the Federal Reserve hinted at this month's meeting that there will be fewer rate cuts next year, which could complicate the trend of yields.

The median forecast from the Federal Reserve officials' dot plot indicates that interest rates will only be cut by half a percentage point by 2025, which is roughly in line with Wall Street's expectations for a decline in the two-year Treasury yield. However, there is a risk that the central bank may pause the easing cycle. After Powell linked the further rate cut outlook to inflation, the U.S. Treasury yield curve reached its steepest level since June 2022 on Thursday.

Tracey Manzi, a senior investment strategist at Raymond James, stated that as the pace of rate cuts slows, short-term yields should also follow this trend, and if the yield curve steepens, it is mainly due to the decline in long-term bonds.

The median forecast from 12 strategists is that the two-year Treasury yield will fall by about 50 basis points to 3.75% in a year. Since the Federal Reserve released its latest economic forecasts on Wednesday, this yield has risen by nearly 10 basis points.

For the longer-term 10-year US Treasury Bonds, strategists expect the yield to be around 4.52% on Friday and to reach 4.25% by the end of 2025, which is about 25 basis points lower than the current level.

State Street macro strategist Noel Dixon predicts that whether looking at real growth rates, inflation expectations, or term premiums, long-term Bonds will always be under pressure. The strategist previously forecasted that the 10-year yield could rise above 5% next year.

They are not only considering how fiscal policy might evolve but also looking at the management of the Federal Reserve's holdings of US Treasury Bonds. The conclusion of the central bank's balance sheet reduction could decrease the supply of Bonds, thereby stimulating demand for purchases.

Barclays strategists, including Anshul Pradhan, wrote in a report, "Even if the Federal Reserve may continue to lower policy rates, bringing down short-term yields, many factors supporting high long-term yields still exist: such as the higher neutral rate, rising interest rate volatility, inflation risk premium, and substantial net issuance under price-sensitive demand."

Bloomberg strategist viewpoint.

"Stable economic performance in early 2025 may lead to a gradual rate cut by the Federal Reserve, with rates potentially peaking at 4%. The 10-year yield may only deviate from 3.8%-4.7% in the event of a significant economic shift."

—Ira F. Jersey, Will Hoffman.

The Trump tariffs and tax policies that will be announced in the coming weeks could disrupt Wall Street's outlook.

Pradhan stated, "Higher tariffs and stricter immigration controls will lead to slower growth but rising inflation."

Morgan Stanley and Deutsche Bank hold the most optimistic and pessimistic views on the Bonds market, respectively. Morgan Stanley believes that investors face "downside risks to economic growth" and "unexpected bull markets." The bank expects the Federal Reserve to cut rates faster than other banks and predicts that the 10-year yield will fall to 3.55% by December next year.

Deutsche Bank predicts that the Federal Reserve will not cut rates in 2025, and the Matthew Raskin team forecasts that, amidst strong economic growth, low unemployment, and sticky inflation, the 10-year yield could rise to 4.65%.

They wrote in a report, "The main catalysts that support our view are our realization that the conditions of inflation and the labor market require a more restrictive path for the Federal Reserve's interest rates than what is currently being digested."