As bond traders wrap up the worst quarter for Treasuries since the aftermath of 2016’s surprise U.S. presidential election result, there’s no shortage of mystery surrounding what comes next.

First and foremost, there’s the likelihood of another massive government-stimulus package—featuring infrastructure spending, this time—that could tally as much as $3 trillion. Traders are just starting to debate whether the tax increases expected to be included would offset the stimulative benefits to the economy, and how that calculation might play out in the world’s biggest bond market.

The debate in Washington over further spending comes as bonds have hit a lull, rebounding modestly this week after a punishing stretch that drove yields to pre-pandemic heights. In options, the cost of hedging against higher yields has eased, although the tilt remains bearish. One force in the days ahead may play into that shift and help cap yields for now: quarter-end rebalancing that spurs buying by pension funds. But all eyes will be on the economic proposal that President Joe Biden says he’ll unveil next week.

“The reason the market hasn’t wrapped its head around this second plan yet is because of the tax component,” said Michael Franzese, managing partner at MCAP LLC. “The bottom line, for me as a market maker and position taker, is that I don’t see the necessity of having to do anything. Tax hikes are more detrimental than the positives that we might gain from infrastructure expense.”

For now, Franzese says he’s relying on monthly and weekly employment data to determine how quickly the current $1.9 trillion round of stimulus is working and to see if he should resume selling Treasuries maturing in seven years and out.

The government will release March payrolls figures on the April 2 Good Friday holiday, when U.S. stocks are closed and the bond market is open for a half day. Economists project that job gains likely surged this month.

Also next week, quarter-end rebalancing may drive investors into fixed income and out of equities, given the rally in stocks and the bond selloff. Bank of America Corp. strategists, for example, estimate that $41 billion of U.S. private pension funds will flow into Treasuries over the quarter, with the bulk of that still to come before the end of March.

The 10-year note, a benchmark for global borrowing, yields 1.68%, down from the more than one-year high of 1.75% touched in mid-March. The reflation trade fueled by previous rounds of stimulus and ultra-loose Federal Reserve policy has Treasuries down 3.79% this year through March 25. It would be the biggest quarterly loss since Donald Trump’s 2016 election victory.

Still at issue in the market’s calculus behind the next round of stimulus is the amount of tax hikes in the plan.

For Chevy Chase Trust’s Craig Pernick, the stimulative potential of the spending figures being discussed in Washington may overshadow concern about the headwinds from tax hikes.

“The market has always anticipated there was going to be some infrastructure package, but not yet fully understood what that would look like,” said Pernick, the firm’s head of fixed income. “Depending on how it’s paid for, it could go either way. I would be more concerned that it pushes rates moderately higher, throwing more fuel on the fire of economic growth.”

—With assistance from Edward Bolingbroke and Daniela Sirtori-Cortina.

This article was provided by Bloomberg News.