Expectations of interest rate cuts have cooled rapidly, with the market starting to bet on "one more rate cut this year, and then no more rate cuts at the beginning of next year."

Unexpected rise in inflation and a soft labor market cast a shadow over the Fed's rate cut prospects.

Data released in the United States last week showed that the CPI in September rose by 2.4% year-on-year, exceeding the expected value of 2.3%; the core CPI in September rose by 3.3% year-on-year, also surpassing the expected value of 3.2%. At the same time, the number of initial jobless claims unexpectedly rose from 225,000 to 258,000 last week, indicating a softening labor market.

This further intensifies the uncertainty surrounding the Fed's rate cut prospects. Following the release of the two sets of data, the 10-year US Treasury yield briefly rose to its highest level since July, and the Move Index, compiled by Bank of America to track the expected yield volatility of US Treasuries, has also surged to its highest level since January.

Traders' bets on rate cuts have also moderated. Traders are currently betting that the Fed will cut rates by only 45 basis points in the remaining two FOMC meetings this year, whereas previously, a 50 basis point cut was seen as a certainty on the eve of the September non-farm payrolls report.

Meanwhile, the options market is betting on only one more rate cut this year, and even a pause in rate cuts after a 25 basis point cut by the beginning of next year.

Some analysts point out that the volatility in the US bond market may continue for several weeks until the US Treasury Department releases its quarterly funding announcement, the October non-farm payrolls report, and the Fed's November interest rate decision.

Citadel has warned its clients to prepare for "significant future volatility in the bond market".

David Rogal, portfolio manager in BlackRock's fixed income department, said:

"As the election is factored into the option value window, the implied volatility of (US Treasury yields) may be higher."

Media reports indicate that top asset management companies including BlackRock, Pacific Investment Management, and UBS are currently advocating for investments in the relatively lower-risk 5-year US Treasury bonds.

Anmol Sinha, investment director of Capital Group managing $91.4 billion in bond funds, stated:

"The shorter-term part of the yield curve (five years or less) currently seems more attractive to us."

As of the time of writing, the 10-year US Treasury yield has risen to 4.1%, at 4.102%.