With synchronized global monetary easing in full effect and U.S. elections just weeks away, bond markets face rising volatility and potential shifts, with inflation risks and fiscal policies likely to play a pivotal role in shaping the near-term outlook.

Rising geopolitical tensions and inflation concerns pushed U.S. 10-year Treasury yields to 4.1%, as market expectations shifted towards a higher U.S. terminal rate, reflecting increased uncertainty.

After a week of better-than-expected U.S. economic data and rising oil prices, bond markets adjusted their expectations, now aligning with the Fed's forecast of two rate cuts by year-end, removing a previously anticipated full cut.

Despite mixed economic data, bonds remained flat over the week, with emerging market bonds outperforming, driven by Chinese stimulus measures.

Last week, the Federal Reserve kicked off its rate-cut cycle with a bold 50 bps reduction, signaling that monetary policy had grown too restrictive given the progress on inflation and the normalization of the job market.

This week, all eyes are on the Federal Reserve as they prepare to potentially initiate their first rate cut after a prolonged period of holding rates at peak levels. With a near 50/50 split in market expectations for either a 25 or 50 bps cut, this decision could set the tone for the economic outlook moving forward.

A string of disappointing labor market data last week spooked investors, pushing them toward bonds. The U.S. yield curve is now positive, while the 10-year Treasury yield has hit a one-year low.

August closed on a positive note for fixed income, with U.S. Treasuries averaging a +1.5% gain, as markets reacted to a moderating job market and the prospect of the Fed's anticipated rate cuts.

The bond market surged this week, driven by growing expectations of an imminent rate cut from the Federal Reserve. With yields dropping across the curve, investors are positioning for a more accommodative monetary policy as the Fed shifts its focus towards stabilizing growth and managing a cooling job market

After months where inflation dominated market movements, bond markets now seem less reactive to inflation data, turning their attention instead to labor market trends, upcoming elections, and geopolitical uncertainties. This shift could indicate a broader rebalancing of market drivers in the months ahead.