Recently, an interesting phenomenon has emerged in the U.S. debt market. The ICE BofA MOVE Index, which measures U.S. Treasury volatility, has been steadily declining, reaching around 59 last Friday — the lowest since October 2024. Even more noteworthy is that this index has been trending downward from 99 at the end of last year, and given the current momentum, 2024 is likely to see the largest annual decline since data collection began in 1988, second only to the financial crisis of 2009.

The Federal Reserve's rate cuts have indeed helped ease recession risks, and market panic has subsided accordingly. However, market expectations suggest that the policy pace may be adjusting. According to CME FedWatch data, the probability of a 25 basis point rate cut in January next year is only 16.1%, while the chance of holding rates steady is as high as 83.9%. By March, the probability of a total 25 basis point cut rises to 45.4%, with a 47.7% chance of no change, and only a 6.9% chance of a 50 basis point cut. In other words, the market's expectations for Fed rate cuts have become more cautious.

Interestingly, recent political developments have stirred up quite a bit of turbulence. Trump publicly stated he is considering suing Fed Chair Powell and said he should resign. He openly admitted he would like to fire Powell directly, but since his term is nearing its end, the new chair is expected to be announced officially in January next year.

This creates an intriguing situation — bond market volatility has cooled, but political confrontations have heated up. The underlying logic is worth pondering: Is the Fed's policy shift driven by economic data changes, or is it influenced by political pressure? If personnel changes do occur, what stance will the new leadership take on monetary policy? All of these factors could trigger chain reactions in the market.

What do you think about this situation?