The speed at which the bond market sell-off triggered by Trump's victory in the presidential election last week ended was almost as fast as it began. However, companies like BlackRock, JPMorgan, and TCW Group have continuously issued warnings, suggesting that this turbulent journey may be far from over.

Trump's imminent return to the White House has greatly changed the prospects of the US bond market, with the October decline already wiping out much of this year's gains. After the Fed began lowering the federal funds rate from its multi-decade high point less than two months ago, Trump's potential for domestic tax cuts and high tariffs externally could lead to a resurgence of inflation by raising import costs and injecting stimulus measures into an already strong economy. His fiscal plan will also lead to a sharp increase in the federal budget deficit, raising doubts about whether bondholders will start demanding higher yields in exchange for absorbing the continuously increasing new supply of US bonds.

Janet Rilling, Senior Portfolio Manager and Head of the Fixed Income Team at Allspring Global Investments, Plus, stated that a possible scenario is "the bond market emphasizes fiscal discipline with an unpleasant rise in yields." She expects that the ten-year US Treasury yield could return to the peak of 5% reached at the end of 2023, about 70 basis points higher than last Friday's level, "this is a cyclical high, and if the proposed tariff policy is fully implemented, this would be a reasonable level."

There is still considerable uncertainty about the specific policies Trump will implement. Some potential impacts have already been absorbed as speculators began betting on his victory before the election results were announced. Although the yield on the ten-year and thirty-year US Treasury bonds soared to the highest levels in several months last Wednesday, they fell again in the next two days, causing the level at the end of last week to be lower than the level at the opening.

Trump's proposed policies are expected to stimulate economic growth prospects, prompting traders to lower their expectations for the extent of the Fed's interest rate cut next year, dispelling hopes of a rise in US bonds as the Fed drastically eases policy.

Economists at Goldman Sachs, Barclays, and JPMorgan have all adjusted their forecasts for the magnitude of Fed rate cuts next year. Swap traders expect that by mid-2025, the Fed will lower the federal funds rate to 4%, one full percentage point higher than their forecast in September.

Economic data in the coming week, especially the latest CPI and PPI data, could trigger a new round of volatility in the bond market. Fed Chair Powell, New York Fed President Williams, and Fed Governor Waller will also be giving speeches this week.

Chairman Powell refuses to speculate on how Trump's economic agenda may affect the Fed's policy path, and states that it is currently unclear whether the recent rise in US bond yields will continue. Analysts generally expect that the Trump administration will further deteriorate the federal budget deficit. The Responsible Budget Committee estimates that by fiscal year 2035, Trump's financial plan will increase debt by $7.75 trillion.

Ruben Hovhannisyan, fixed income portfolio manager at TCW Group, said: "Under otherwise equal conditions, an increase in deficits and borrowing capacity will at some point lead to a rise in bond yield premiums. The question is, under the leadership of the Trump administration, how much more will the fiscal deficit increase."

Macro strategist Cameron Crise said: "Election trading will take a brief break as investors seek to realign risks and profit appropriately. The rise in US bond yields is more sustained and pronounced, but the Fed is on the edge of restarting a loose cycle, rather than in the middle of a loose cycle."

Rick Rieder, Chief Investment Officer responsible for global fixed income business at BlackRock, has been warning investors not to expect bond prices to rise from now on. He pointed out that recent rebounds are opportunities to lock in high yields on short-term bonds, but given the current uncertainty, he remains cautious about long-term bonds.

Others believe that there is further room for decline in the bond market. Bob Michele, Chief Investment Officer and Global Head of Fixed Income at JPMorgan Asset Management, and others warn that the yield on the 10-year US Treasury bonds could eventually rise to 5%. Vincent Mortier, Chief Investment Officer of Europe's largest asset management company Amundi SA, also points this out, calling it a "genuine alert level" that could lead investors to shift cash to bonds, affecting the stock market.

Editor/Rocky