Strong economic data and expectations that Trump's election victory would reignite inflation have prompted traders to reduce their expectations for the magnitude and speed of interest rate cuts, with some analysts warning that the market may have overreacted.

This week, U.S. Treasuries were sold off, with yields across the board rising, and the yield on the 10-year U.S. Treasury note increased by about 15 basis points, reaching its highest point since July.

A series of changes in the U.S. market have also had an impact on global markets: the dollar has risen by more than 3% over the past month, pushing the dollar-yen exchange rate above 150, prompting Japanese officials to issue warnings about the weak yen, and the Mexican peso has also come under pressure.

Behind the sharp drop in U.S. Treasuries is the rapid cooling of investors' expectations for rate cuts. After the Federal Reserve cut rates by 50 basis points in September, traders initially expected at least another 25 basis points cut this year, but currently, swap market transactions show a significant increase in the likelihood that the Federal Reserve will keep rates unchanged in the remaining two meetings of the year.

Analysts point out that investors are shifting from overestimating the Federal Reserve's rate cuts at the beginning of the year to underestimating them on the other extreme.

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The pendulum has swung to the other side.

Analysts warn that U.S. Treasury yields may have risen too high, and the Federal Reserve, along with most other major central banks globally, is still expected to continue the rate-cutting cycle.

Rob Burrows, a government bond fund manager at M&G Investments, said that the dovish expectations for the Federal Reserve's rate cuts at the beginning of the year were due to investors' fear of "missing the rate-cutting cycle," which stemmed from the era of low interest rates following the global financial crisis. When strong employment data supports the view that aggressive rate cuts are not needed, "the market was spooked."

Jim Caron, Chief Investment Officer of the Portfolio Solutions division at Morgan Stanley Investment Management, also believes that inflation has been declining, and the Federal Reserve is still expected to cut rates.

Ed Al-Hussainy, Senior Global Interest Rate Strategist at Columbia Threadneedle Investments, said that from investors overestimating the magnitude of the Federal Reserve's rate cuts to underestimating them, "the pendulum has swung in the other direction":"My sense is that currently in the market, they are so sensitive to the increase in fiscal deficits that they underestimate the actions the Federal Reserve must take," said Citigroup Global Head of Short-Term Interest Rates Trading, Akshay Singal. The uncertainty in the U.S. Treasury market has been "locked in."

Against the backdrop of strong U.S. economic data, Treasury yields have risen, market volatility has returned, and analysts have differing views on the Federal Reserve's path of rate cuts. Singal stated that the path of rate cuts is "much broader than in the past," with the Federal Reserve potentially making no rate cuts at all in 2025, or cutting rates by 125 basis points or more. Singal added, "The uncertainty stems from multiple aspects—economic fundamentals, the Federal Reserve's response, and the political environment that could drive changes in fiscal policy."

William Vaughan, Deputy Portfolio Manager at Brandywine Global Investment Management, said that the global bond market "has volatility locked in for the short to medium term," with investors awaiting the UK budget, U.S. elections, and key monetary policy decisions from central banks around the world.

Furthermore, the increased expectation of a Trump victory has also heightened market expectations for a resurgence of inflation, thereby exerting upward pressure on bond yields.

Now, U.S. Treasury investors are preparing for the uncertainty during the election period and the economy. Caron stated, "Ultimately, U.S. Treasury yields may remain at a constrained level, which is unlikely to be the beginning of a new trend of rising yields, but merely an adjustment."