As the probability of Trump's reelection rises, US bonds fell for the second consecutive day on Monday, July 1, Eastern Time, pushing yields to their highest level in over a week. Long-term treasury bonds were the most affected, with both 10-year and 30-year US bond yields up more than 8 basis points, the latter reaching a new high since June 3.

Market analysts generally believe that this is a direct response to Trump's increased chances of winning last week.

Wall Street's rate strategists are urging clients to prepare for Trump's return to the White House, which is expected to lead to continued inflation and rising long-term bond yields. Stefan D'Annibale, head of rate trading and sales at Odeon Capital Group, said: " The market is gradually digesting the possibility of a Trump victory and expects interest rate volatility to lean towards upward yields."

"The market is gradually digesting the possibility of a Trump victory and expects interest rate volatility to lean towards upward yields."

In this trend, large financial institutions such as Morgan Stanley and Barclays are also adjusting their strategies. Morgan Stanley pointed out that the prospect of a Trump victory has increased the attractiveness of steepening the US bond yield curve.

As for the underlying factors affecting the bond market trend, Marvin Loh, senior global macro strategist at State Street, pointed out that the steepening of the bond market trend is not only due to the increased probability of Trump's re-election, but also due to political factors around the world, especially the development of populism. These factors together affect global demand for debt.

The possibility of Trump's re-election is also affecting expectations for the US dollar exchange rate.

JPMorgan's strategists said in a report on June 28 that although moderate rate cuts by the Fed would weaken the dollar, it would not be enough to cause a significant decline. Three factors are expected to provide further support for the dollar, and it is expected to remain high in the second half of the year.

1) The US election. JPMorgan believes that US election risks may weaken the market's risk appetite, and investors may be more inclined to seek safe-haven assets such as the dollar. Therefore, before and after the election, the dollar may receive some positive support.

In addition, the higher tariffs that the Trump administration may adopt and policy measures against Russia will also support a stronger dollar. On the one hand, higher tariffs will increase US import costs, reduce demand for foreign goods, and thus reduce US demand for foreign exchange. Therefore, tariff policies help support the exchange rate of the dollar. On the other hand, because of the close trade and political ties between European countries and Russia, policy measures against Russia will intensify geopolitical tensions and may cause market concerns about the euro, which may ultimately have a negative impact on the euro.

2) Improvements in the US Treasury yield advantage and US economic growth performance will also support the dollar exchange rate.

3) International factors. Of course, the trend of the dollar is not only affected by domestic factors in the United States, but also related to international factors. JPMorgan further pointed out that the dollar may only show a significant decline if there is an acceleration of growth outside the United States. In addition, even if US interest rates have reached their peak, if policy differences between the Fed and other major central banks increase or more volatility shocks occur, the dollar may continue to appreciate.

In addition, JPMorgan estimates that if the US imposes a universal 10% tariff on all imported goods, the trade-weighted exchange rate of the dollar may rise by 5%. Although growth-supporting fiscal policies may have a deficit impact in the medium term, it is also beneficial to the dollar in the short term. Such policies may stimulate economic activity and employment, thereby boosting market confidence in the US economy.