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The impact of "Trump Trading" vs. Fed rate cuts on the U.S. bond yield?

Trump wins the U.S. presidential election, the Federal Reserve announces a 0.25 basis point rate cut, and the two major news have settled down. The U.S. bond yields have also experienced a volatile trend of rising first and then falling. Bond yields and bond prices are inversely related, and bond investors have recently experienced repeated fluctuations.

In November, the market has issued an investment quiz for mooers, under the influence of three major events: 'Trump trade', Fed rate cuts, and the 12th meeting of the 14th National People's Congress Standing Committee. What is the future direction of US bond investments?

Welcome mooers to participate in this discussion and share to win rewards!Click to participate in the election + rate cut, the atmosphere is weak! How to deploy bond trading?

This article is divided into the following points, recommend liking, sharing, participating!

1. The impact of the 'Trump trade' on the US bond market

2. The impact of Fed rate cuts on the US bond market

3. Expert opinions

4. Mooer perspectives

5. Interactive with prizes.

6. Q&A - Bonds Express.

I. The Impact of the 'Trump Trade' on the U.S. Bond Market

On November 6, Trump's election result locked in the election victory, leading to a rise of 0.18 basis points in the U.S. 10-year treasury notes yield, reaching a high of 4.479%, the highest level since July! Fundamentally, it is related to Trump's policy of raising import tariffs to support U.S. manufacturing and massive tax cuts to stimulate inflation.

Bond traders believe that Trump's proposed policies and the overwhelming victory of the Republican Party will pose a 'clear threat' to bond buyers.In a scenario where the Republicans control both the White House and Congress, Trump is expected to smoothly advance his tax cuts and tariff plans, potentially reigniting inflation and pushing up the 10-year U.S. bond yields.

II. The Impact of the Fed's Rate Cut on the U.S. Bond Market

In the early hours of November 8, the Fed's monetary policy meeting proceeded with a 0.25 basis points rate cut as scheduled, marking the second rate cut by the Fed following a 0.5 basis points cut in September.

During this meeting, Fed Chair Powell did not mention any hints of a possible pause in rate cuts, and he stated that the outcome of the upcoming presidential election will not directly affect monetary policy, and Trump does not have the authority to dismiss him from his position.

Therefore, according to CME's "Federal Reserve Watch Tool," traders expect a 75% probability of another rate cut in December, higher than Wednesday's 69%.

Rate cuts are actually a means by which the Fed achieves a loose monetary environment by lowering the domestic benchmark interest rate. Under rate cuts, banks and financial institutions can lend to businesses and individuals at lower borrowing costs, thus promoting business development, increasing employment, boosting consumption, and stimulating economic growth.

The most directly benefited asset after a rate cut is U.S. bonds.Historical data shows that during rate cut cycles, both short-term and long-term U.S. bond yields will decrease, leading to price increases. Long-term U.S. bonds are more sensitive to interest rates due to their longer investment horizon, and may experience higher price gains.

For more details, click to view >> [Rate Cuts 2024] How does U.S. rate cuts affect the market? Attached with the U.S. interest rate schedule.

3. Views from major banks

1. BofA Merrill Lynch believes that if Trump takes office and implements fiscal expansion, the Fed may increase its neutral interest rate expectations. Furthermore, if the new president significantly imposes tariffs, the Fed may temporarily pause rate cuts due to concerns about inflation and economic growth.

Charles Schwab's chief fixed income strategist, Casey Jones, believes the bond market is currently in a 'new regime.' The path with the least resistance for yields currently is to rise, as the market is not prepared for this outcome and needs time to determine what the actual legislation might be, and then what the Fed's reaction will be.

👀 Some even believe that if US inflation continues to rise, the Fed may pause rate hikes in December.

Journalist Nick Timiraos, also known as the 'New Fed Communication Agency,' published a recent article stating that Trump's election will not currently affect the Fed's monetary policy stance, but if the Republicans further 'sweep' both houses, the December meeting may modify the language regarding 'basic assumptions.'

Terry Whitsman of Macquarie Group stated that bond yields are rising in correlation with the probability of Trump winning the presidential election, which is 'not a coincidence.' He mentioned that if US inflation continues to rise, the Fed may pause rate hikes in December.

Of course, there are also voices that see this as an opportunity to increase positions, stating that 'buying bonds for interest' is the right approach.

Cathay Securities Futures Department Manager Cai Minghan stated that Trump's election is 'both good and bad' for the bond market, and due to economic data exceeding expectations, rate cuts were not as substantial as expected, leading to bond market weakness. However, in the long term, a close to 5% yield is still very good, emphasizing that receiving interest payments dutifully is the key to bond investment.

Fourth, Mooer's perspective

Why do bond yields rise during rate cut cycles? How should bonds be invested in the future?

Many mooers have provided their insights, and Xiangxiang has also organized them for everyone. New friends are welcome to join the discussion together.

#With the general election and rate cuts, the market is uncertain! How should bond trading be deployed? #

@17078221: Selling bonds, setting stop-loss orders, and buying longer-term bonds at current interest rates may seem tempting, but the wise approach is to wait for significant moves.

: Click to view the original text >> After Trump's victory, u.s. 10-year treasury notes yield "suffered a blow". How should bonds be handled now?

@有錢花鴨: It seems like many people are asking why tlt falls when Trump clearly said he would cut rates. Here I share my views: 1. The market is pricing in the secondary inflation caused by rate cuts + tariff hikes + toughened immigration policies; 2. The sword hangs over the boat when Trump took office last time, causing a major drop in U.S. bonds.

In my view, the apparent reason for the current decline is 1, but what the market is really trading is 2.

點擊查看原文>>

@nudism：減息週期裏黃金坑，長期維持不減息基本不可能，大選情緒過去後，減息決定再次公布，收益率都要回歸正常。4.4%-4.5%區間做空收益率期貨。拭目以待我的判斷。

點擊查看原文>>

@紅心豚：現在20-30年利率到了4.6，美債還在被拋售，美國借錢變困難。所以，我料息還是會Decrease下來，還要比預計急。先開印鈔機把錢印出來，穩住美國企業，再跟人家打貿易，才有勝算。

點擊查看原文>>

五、有獎互動

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🎁Click on the topic to participate in the election + rate cut, the situation is stalemate! How to deploy bond trades?

Reference perspective:

1) How do you think the future of the bond market will develop?

2) How will the long/short-term national bond yields change?

3) How will the 'Trump trade' and the overlapping rate cut cycle affect your future investment decisions?

4) What are some recommended US bond/bond fund/bond ETFs worth paying attention to? (Sharing your choices makes it easier to get interaction~)

【Activity Rewards】

The official will comprehensively rank based on the number of likes, views, comments, shares, and the quality of the content shared in the experience.

(1) Best Comment Award: Combine the current market situation to share your views on the bond market and future investment strategies. The top 3 mooers will each receive a CowTreasure pot.

(2) Financial Wizard: Share your bond investment exposure, including U.S. bonds / bond funds / bond ETFs. The top 3 mooers with the highest amount will each receive 1888 points.

(3) Participation Award: Participate in discussions with over 30 words to receive 66 points, no limit on the number of participants.

【Activity Time】2024/11/8-2024/12/6 23:59

Six, You Ask, I Answer - Bond Direct Train

🎁In addition to participating in topics, Xiang Xiang has prepared more surprises for the mooers~

If you still don't understand bonds and want to know the investment opportunities and risks of bonds, feel free to ask in the comments section. Xiang Xiang will pass on to the professional team for everyone. @富途投資顧問 - 盧宇軒We will collect common questions from the comments section and provide unified answers! (Mooers whose questions are selected will also receive 200 points.)

What are you waiting for, come participate now! Double rewards are waiting for you to claim~

1. Click on the topics to participate and win surprise giftsIn the context of the election + rate cut, how should bond trading be deployed?

2. Ask in the comments section, Q&A on bonds.

📌For more great articles on bond investments, click now to view:

[Interest Rate Cuts 2024] What impact does the US interest rate cuts have on the market? Attached with the U.S. interest rate schedule

Comparison of returns on US bond interest rates | How to buy US bonds through Futubull in Hong Kong?

A 1% rate cut, a 15% price increase? Don't miss out on these benefiting assets during the rate cut cycle!

Mooer has something to say: all selected mooers in this issue will receive a reward of 200 points!(Welcome mooers to actively share in the community,hold positions views or hold positions orders, etc.There is a possibility that they will be selected in the next issue!

【Attention】

1. The above rewards can be obtained simultaneously; any improper behaviors such as plagiarism, copying and pasting are strictly prohibited. Once discovered, the qualification for rewards will be revoked.

2. Futu reserves the final interpretation of this event.

The final list of winners for this event will be announced within 30 working days after the event ends. If you have any questions, please contact.@象象。

Disclaimer: Futu reserves the right of final interpretation and decision for this event. This document should not be regarded as an invitation, solicitation, advice to buy or sell any investment product or make any investment decision, nor should it be interpreted as professional advice.

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