On July 2nd, Caixin reported that U.S. bond prices fell sharply for the second day in a row on Monday, pushing up yields to multi-week highs. Many traders said that this was a sustained effect of Trump's rising probability of winning for several trading days. Bond yields bounced back with prices.

Market data shows that the large-scale selling of long-term bonds in the past two days has driven up overall U.S. Treasury bond yields. The 10-year U.S. Treasury yield, known as the "anchor of global asset pricing," has risen more than 15 basis points in the past two trading days and was quoted at about 4.468% at the end of Monday's session. The 30-year U.S. Treasury yield also rose more than 5 basis points on Monday to 4.615%, hitting its highest level since June 3.

As can be seen from the following chart, the recent rise in the 10-year U.S. Treasury yield is almost inseparable from the changes in the U.S. election.

Republican presidential candidate Trump undoubtedly won two "big victories" in the past few trading days:

One was in last week's first presidential debate, where he clearly overwhelmed the "old and weak-willed" Biden; the second was a "courtroom victory." The U.S. Supreme Court ruled on Monday that former President Trump enjoys significant immunity from prosecution for acts committed during his term in office, which could hinder efforts to sue Trump for attempting to overturn the 2020 presidential election.

The latest opinion polls over the weekend have shown that voters are increasingly skeptical of Biden's leadership ability after his poor performance in last week's debate. CBS News and YouGov conducted polls on Friday and Saturday after the debate, which showed that 28% of registered voters thought Biden should run for president, while 72% thought he should not.

These latest changes in the election are undoubtedly quickly increasing the possibility of Trump's victory in the November presidential election and ultimately returning to the White House.

As a result, on Wall Street, many interest rate strategists have urged clients to prepare for the resurgence of inflation and rising long-term bond yields. Large banks such as Morgan Stanley and Barclays are already planning ahead for Trump's ultimate victory in the U.S. presidential election.

Morgan Stanley strategists, including Matthew Hornbach and Guneet dingra, said in a report over the weekend that it was "time" to bet that long-term rates would rise relative to short-term rates. The firm noted that Trump's rise in opinion polls since the first debate last week means investors will have to consider the risk of a Republican victory, which could lead to fiscal expansion and pressure on long-term bond yields.

Stefan D'Annibale, head of rate trading and sales at Odeon Capital Group, said, "The market is gradually digesting the possibility of Trump's victory, and interest rate volatility is expected to lean towards rising yields."

In addition, Barclays believes that the best response to the rising probability of a Trump victory is to hedge against inflation risk. The bank's strategists Michael Pond and Jonathan Hill wrote on Friday that the clearest narrative is that the performance of five-year TIPS may outperform benchmark five-year U.S. Treasuries.

Thierry Wizman, global forex and rate strategist at Macquarie, pointed out that "Biden's performance in the first debate of the presidential election was widely criticized last week, which may lead investors to believe that former President Trump is more likely to win the election on November 5th, thus bringing further pressure on U.S. bonds. Due to various reasons such as fiscal policy, tariff policy and immigration policy, we do believe that the Trump administration will be more likely to trigger inflation than the Biden administration in 2025-2028.

"The selling of long-term bonds shows that today's trend is not related to concerns about the Fed's fight against inflation, but rather reflects concerns about rising budget deficits after Trump returns to power," said Lawrence Gillum, chief fixed-income strategist at LPL Financial. "As Trump's chances of winning the election increase, there is some election anxiety in the market."

In fact, not only have U.S. Treasury yields risen sharply in recent times, the U.S. dollar index also rose sharply on Monday. After hitting its highest level since November last week, the Bloomberg US Dollar Spot Index rose another 0.2% on Monday.

Many foreign exchange traders believe that Trump's trade protection policy may push the U.S. dollar higher. Jane Foley, head of currency strategy at Dutch cooperative bank Rabobank in London, said that if Trump advances some of his huge tariffs, it will trigger inflation. This may mean that the Fed's rate-cutting cycle will stop soon - which will support the U.S. dollar.

Looking ahead, investors should continue to pay attention to further developments in the US political situation, as well as the annual central bank forum hosted by the European Central Bank in Sintra, Portugal. Tonight, Federal Reserve Chair Powell, ECB President Lagarde, and Brazilian Central Bank President Neto will give speeches at the forum, which may reveal more clues about the direction of monetary policy.

Editor/Somer