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? Trump may have used the stock market as a scorecard in his first term, but now the president and his economic officials appear willing to endure short-term economic pain to reshape America’s economy. That makes bonds more attractive to investors, who may raise their expectations for interest rate cuts from the Federal Reserve.

Continued fears of a “Trumpcession” are causing stocks to tumble, and investors are heading to the bond market in a bet that the Federal Reserve might soon be forced to cut rates.

Yields fall as bond prices rise, and the annual return on the two-year Treasury note—the piece of U.S. government debt most sensitive to interest rate changes—sank 10 basis points on Monday afternoon to 3.90% as investors piled into “risk-free” assets. Meanwhile, the yield on the 10-year Treasury, the benchmark for rates on mortgages and other common types of loans throughout the economy, declined roughly nine basis points to 4.23%.

The new administration’s on-again, off-again tariff threats have significantly dented consumer and corporate confidence. Trump may have used the stock market as a scorecard in his first term, but he and his economic officials have remained defiant this time around, stressing they are willing to endure short-term economic pain to reshape America’s economy.

Matt Sheridan, lead portfolio manager for income strategies at AllianceBernstein, said most of Wall Street is not ready to pound the table about a recession. As the S&P 500 dropped more than 2% to hit its lowest level since September, however, he said the volatility that’s characterized the bond market in recent years is now hitting stocks.

“People realize that uncertainty is here,” Sheridan said. “And it’s here to stay.”

Bonds have traditionally been viewed as a natural diversifier to stocks, and fears about economic weakness have caused defensive flows into Treasuries, said Jay Hatfield, the CEO of Infrastructure Capital Advisors, which manages ETFs and several hedge funds.

“When the stock market’s weak, it means the Fed’s probably going to cut at some point,” he said.

Even if the central bank takes its time to ease monetary policy, he said, market participants will drive borrowing costs lower by buying 10-year Treasuries as signs of economic weakness increase. According to CME Fedwatch, markets are currently pricing in three 25-point cuts from the Fed by the end of the year.

A new type of “Trump trade”

Yields surged ahead of Trump’s inauguration as many investors remained bullish on Trump’s supposedly pro-growth agenda of tax cuts and deregulation and considered whether his tariff agenda could prove inflationary. That trade has unwound, however, with the 10-year yield falling about 60 basis points since he came back to office as uncertainty weighs on economic activity.

The Atlanta Fed’s “GDPNow” estimate is currently signaling a contraction of -2.4% for the quarter, compared to a forecast of more than 2% growth less than two weeks ago. The latest batch of inflation data on Wednesday, meanwhile, will come in well above the Fed’s 2% target, contributing to fears of a worst-case scenario of stagflation.

For his part, Hatfield believes monetary policy has been overly tight for far too long.

“It’s just like people are just starting to figure this out, even though we told them this was happening since the beginning of the year,” he said. “All the data has been flat-out awful—trade deficit, retail sales, ISMs have been bad. Nothing’s been good.”

As the chances of a Fed rate cut rise, Sheridan said, it makes sense for investors to move not just out of stocks but also money market products, where yields can drop meaningfully and very quickly if the federal funds rate is lowered. Markets have been here before, though, and relatively recently.

During the banking crisis of 2023, Sheridan noted, two-year yields fell about 100 basis points and traders priced in six rate cuts amid fears of a credit crunch. None of those rate reductions materialized.

What markets are doing today, he said, is likely not as much a sign of an imminent recession as much as a rational response to tremendous uncertainty. In other words, this is to be expected when the world’s largest economy decides to put its trade policy in flux.