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US Election Focus Derails Bond Market Rally Hopes for 2024

As the 2024 U.S. presidential election looms closer, bond investors are recalibrating their strategies, betting that yields will remain elevated for an extended period. This shift has been fueled by President Joe Biden’s underwhelming performance in the first presidential debate against his Republican rival, Donald Trump. The debate, which heightened speculation about a possible Trump victory, has led to a significant rise in bond yields, casting a shadow over hopes for a bond market rally.

The Impact of the Presidential Debate on Yields

Following the debate, the benchmark 10-year yield surged approximately six points to 4.34%. This reaction was driven by increased anticipation of a second Trump win on November 5. Investors are bracing for higher inflation under a Trump administration due to his proposed trade and economic policies, including higher tariffs on imports and expansive government spending combined with lower tax revenues. These policies are expected to swell fiscal deficits and U.S. debt levels.

Republican National Committee spokesperson Anna Kelly emphasized the market’s reaction to Trump’s “debate victory,” reflecting the anticipation of a “strong-growth, low-inflation reality” under Trump. However, some analysts warn that the increasing U.S. debt could eventually pose significant risks.

Mary-Therese Barton, fixed income chief investment officer at Pictet Asset Management, noted that the focus is shifting towards fiscal and debt dynamics. She suggested that the expected rate-cutting cycle might be shallower than anticipated, with more attention on the longer end of the yield curve.

Challenges to a Bond Market Rally

Concerns about widening fiscal deficits and rising government debt threaten to dampen any potential bond market rally. As the Federal Reserve approaches the end of its aggressive rate-hiking cycle aimed at curbing inflation, these fiscal issues could limit the extent of the expected rally.

John Velis, Americas macro strategist at BNY, expressed doubts about a bond rally in the current environment. He noted that the likelihood of a Trump victory has increased, eroding faith in lower yields moving forward. Velis predicted a continuation of recent moves towards higher yields.

While shorter-dated Treasuries, which are more sensitive to changes in monetary policy, could still rally if the Fed cuts rates, the outlook for longer-dated Treasuries remains uncertain. These longer-term debts are influenced by expectations for economic growth, inflation, and the fiscal outlook.

Anders Persson, chief investment officer and head of global fixed income at Nuveen, believes that investor focus will eventually shift back to the rate-cutting cycle. However, he cautioned that the 10-year yield might be more challenging to predict due to election uncertainties and potential inflation persistence.

Investor Frustration and Adjustments

Earlier this year, many investors were optimistic about a normalization of interest rates. However, as the Fed appears to be delaying rate cuts, this optimism has waned. Traders of futures contracts tied to the Fed’s policy rate are now betting on about two rate cuts for the remainder of 2024, a significant reduction from earlier expectations.

Bonds typically rally when rates are lowered, as existing securities become more valuable compared to new ones. However, the lack of monetary easing has frustrated investors who had positioned themselves for a straightforward trade.

Kevin McCullough, portfolio consultant at Natixis Investment Managers, highlighted the frustration among investors who had taken large positions expecting rate cuts. He noted that the conversation with clients about these positions has become increasingly challenging.

Despite the decline in yields from their annual peak in April, the overall performance of Treasuries remains negative. The ICE BofA US Treasury Index showed year-to-date total returns, including bond payouts and price fluctuations, at minus 0.6% as of Friday.

Optimism Amid Uncertainty

Despite the current challenges, many investors remain optimistic about bonds, citing attractive yields in an environment of higher rates. Mike Cudzil, managing director and generalist portfolio manager at PIMCO, one of the world’s largest bond investors, noted the potential for more appreciation in bonds if yields continue to move lower.

Cudzil also emphasized the importance of monitoring inflation and economic growth trends. He pointed out that regardless of the election outcome, the focus will likely remain on the deficit and broader economic conditions.


As the U.S. presidential election approaches, the bond market is undergoing significant recalibration. Investors are preparing for higher yields in the face of potential fiscal and economic policies under a possible Trump administration. While shorter-dated Treasuries may still rally if the Fed cuts rates, the outlook for longer-dated Treasuries remains clouded by fiscal concerns and election uncertainties. Despite these challenges, there is still optimism among investors, who see potential for bond appreciation in the current high-yield environment. As the election draws nearer, the bond market’s trajectory will be closely watched, with significant implications for the broader financial landscape.


  1. Why did bond yields rise after the presidential debate?
    • Bond yields rose due to increased speculation about a possible Trump victory, which investors believe could lead to higher inflation and fiscal deficits under his proposed economic policies.
  2. What are the main concerns for bond investors ahead of the election?
    • Investors are worried about widening fiscal deficits, rising government debt, and the potential for higher inflation under a Trump administration.
  3. How have investor expectations for rate cuts changed in 2024?
    • Traders are now betting on about two rate cuts for the remainder of 2024, significantly less than the earlier expectation of multiple rate cuts.
  4. Why are shorter-dated Treasuries seen as having more rally potential?
    • Shorter-dated Treasuries are more directly linked to changes in monetary policy and could benefit more from potential rate cuts by the Federal Reserve.
  5. Is there still optimism for bond market performance in 2024?
    • Despite current challenges, many investors remain optimistic about bonds due to attractive yields in a high-rate environment and the potential for further appreciation if yields decline.

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