With the support of Vice President Kamala Harris in the Democratic Party, bond traders are re-evaluating the so-called Trump trade, weighing political turbulence against upcoming new economic data and future US interest rate trends.

With the increase in trading volume in New York at noon on Monday, the yields of US bonds for various terms rose by three to five basis points. These fluctuations laid the foundation for a series of US bond auctions, economic growth reports, and inflation indicators favored by the Federal Reserve this week.

George Catrambone, head of DWS Americas' fixed income department, said: "Investor attention should return to fundamentals and Federal Reserve policy. Although the market will fluctuate due to political news, trading around elections is often foolish behavior."

Last weekend's US Treasury market trading showed that investors had already started preparing for Biden's decision not to run for re-election. This is manifested as a slight flattening of the US yield curve, indicating that the bet on rising bond yields, known as the "Trump trade", or the bet that benefits from Trump's loose fiscal policy, higher trade tariffs, and weakened regulation, has lost momentum.

With about three months left in the election campaign, some traders believe that Biden's exit could lead to more intense competition. Harris has quickly consolidated the support of Democratic power figures for her presidential campaign, and it seems that the road for her nomination is unimpeded.

However, although the election has caused market volatility, the main driving factor of yields is still speculation on the degree of economic slowdown and to what extent it forces the Federal Reserve to begin its easing cycle.

Scott Buchta, head of fixed income strategy at Brean Capital, said: "The election is indeed important in certain corners of the market, such as currencies, but US Treasuries are mainly driven by US economic data and the Federal Reserve's push."

Investors expect that there will be at least two 25-basis-point rate cuts before the end of 2024, starting from September. Federal Reserve policymakers are expected to maintain key interest rates for the eighth consecutive time at the FOMC meeting next week, marking one year since they first reached the current target range of 5.25% to 5.5%. Prior to the currency policy statement released on July 31, Federal Reserve officials will be in a silent period and will not comment on currency policy.

Important economic data will be released later this week. On Thursday, the latest US gross domestic product (GDP) for the second quarter will be released. Subsequently, on Friday, the latest situation of the preferred basic inflation indicator of the Federal Reserve-the Personal Consumption Expenditure Price Index (PCE)-will be announced.

Earlier this month, driven by the service industry, consumer prices unexpectedly fell in June, and the latest core PCE annual growth rate is expected to drop from 2.6% in May to 2.5%. These data will be released before the policymakers' meeting in July, and investors will closely follow this meeting to find any clues about the timing of the Federal Reserve's interest rate cuts.

Kevin Flanagan, head of fixed income strategy at Wisdomtree, said: "We seem to know more about monetary policy than potential fiscal policy." In his view, the policy statement of Federal Reserve officials next week is critical. He said: "From a political perspective, there are too many unknowns."

Edited by Jeffrey