A large amount of data, a large number of events! Investors must fasten their seat belts in the next two weeks

After experiencing the worst sell-off in six months, the U.S. bond market is currently entering a critical two-week period that may determine its trajectory for the remaining year.

A series of events that could impact the market are about to unfold. Firstly, the Treasury Department will announce the bond issuance size on Wednesday, followed by the non-farm payroll data on Friday, which will indicate whether the economy is cooling enough to warrant further interest rate cuts.

Next week, the U.S. presidential election is approaching, and on Thursday, the Federal Reserve will also announce its interest rate decision, marking its first meeting since September when it began easing monetary policy.

Alex Chaloff, Chief Investment Officer at Bernstein Private Wealth Management, stated, "The risks in the coming weeks are indeed high."

Over the past month, due to the sustained strength of the economy, doubts have arisen in the market about the extent of future interest rate cuts by the Federal Reserve, leading to a sharp decline in bond prices. The U.S. presidential election has further heightened uncertainty. Some investors speculate that if former President Trump wins, it may push up U.S. bond yields as people expect his tax cuts and tariff policies to fuel inflationary pressures and keep rates high.

Despite the Federal Reserve entering an easing cycle last month with a 50 basis point cut, traders have abandoned their previous widespread expectations of rapid rate cuts by the Federal Reserve. This has caused a significant surge in bond yields, raising borrowing costs across various markets and pushing U.S. bonds towards their first monthly decline since April.

Sinead Colton Grant, Chief Investment Officer at BNY Wealth, remarked, "So far, this has been an extraordinary period—much could happen in the next two weeks."

This series of key events is increasing the risk of intensified market sell-offs in the coming weeks, especially as investors prepare for the outcome of the U.S. election. One sign of this is that traders have paid the highest premiums this year for options seeking to protect investment portfolios from the impact of surging U.S. bond yields.

However, some upcoming events may also provide support to the bond market. It is expected that the Treasury Department will announce maintaining a stable size for the next quarter's bond auctions to avoid any supply pressure, but traders will also closely watch for any signals about the future trajectory.

The preferred inflation gauge of the Federal Reserve, the PCE price index, is expected to show some easing of price pressures, while job vacancies are expected to decline.

According to economists' forecasts, they expect the non-farm payroll data to be released on Friday to show an addition of 110,000 jobs in the U.S. in October, as recent hurricanes and the Boeing strike may have distorted the data. Chaloff said, "Any number close to 180,000 is a magical number," he believes that job numbers below this figure would indicate sufficient economic weakness to support further rate cuts by the Federal Reserve. If the data is strong, the Federal Reserve will "have to seriously consider the next steps."

Institutions point out that both macro and micro traders need to be prepared this week. From Tuesday to Thursday, five out of the seven tech giants in the U.S. will report earnings, and Alibaba will also announce its performance, meaning six out of the top ten companies in the S&P 500 index will release earnings that could impact global markets. In addition to Friday's PCE data and non-farm data, these will be a series of factors that could trigger volatility.

However, with the Federal Reserve entering a "quiet period," the Fed itself will not provide much guidance on the U.S. economy. The derivatives market expects the Fed to cut rates by 25 basis points on November 7th with a probability of over 80%. But they also indicate that the Fed is likely to keep rates unchanged at one of the next two meetings.

However, the Fed's decision may be overshadowed by the presidential election between Vice President Harris and Trump, especially in the case of uncertain outcomes. For the bond market, most speculation is focused on the risks brought by a Trump victory, as his tax cuts and tariff plans could raise yields by expanding the deficit and increasing import costs. George Catrambone, Head of Fixed Income for the Americas at Deutsche Bank Group, said:

"There seems to be some correlation between the 10-year Treasury yield and Trump's path to victory, with the latter seemingly equating to higher yields."