Huitong Financial App News-this year, nothing determines the direction of the US bond market more than monthly inflation data.Crashtime2downloadYes. This week is no exception.
The April CPI, scheduled for release on Wednesday (20:30 Beijing time), is expected to provide the biggest test yet of the rally that began this month. The bond market soared after the Labor Department reported a slowdown in job growth, with yields falling sharply from last month's peak.
This development raises the stakes on upcoming inflation data, which could prolong the rally or be destined to be another ill-fated shift. Strategists at Bank of America (Bank of America Corp.) say the market will be in "waiting mode" until then.
The CPI report earlier this year fuelled the sell-off in the bond market as higher-than-expected data heightened fears that the Fed's anti-inflation process was stagnant. The last time, on April 10, the yield on 10-year Treasuries surged 18 basis points, the biggest one-day rise caused by CPI data since 2002. All in all, half of the rise in benchmark interest rates this year by more than 60 basis points occurred on the date of the CPI release.
Jonathan Cohn, head of US interest rate strategy at Nomura Securities International, said: "the reality of the current market is that we feel a shiver from the data release to the data release." "there does seem to be some kind of economic weakness here, but in fact, for this rally to be sustained, we need to see from the CPI data that the situation is not accelerating again, and we are seeing deflation emerging."
Until this month, the data largely highlighted the strength of the US economy, prompting traders to lift once-common bets that the Fed would cut interest rates several times this year. This reset burdened investors with new losses and undermined the belief in the direction of the market.
Futures positions suggest that many investors covered their bets on US debt as yields peaked last month. Overall, this position has been unstable as investors cope with market uncertainty, Ira Jersey, chief US interest rate strategist at Bloomberg Intelligence, said in a report.
"it has to do with people taking risks and getting burned in the past, and adventurers are a little shy now," Cohn said.
However, bond prices have risen steadily this month as there are new signs that the economy and labour markets are cooling, which will cause the Fed to start loosening monetary policy later this year.
The yield on 10-year Treasuries fell in both trading sessions in May, falling nearly 20 basis points to 4.Crashtime2downloadAbout .5%. More broadly, according to the Bloomberg index, Treasuries rose about 1.3% as of may 9, recovering some of the 2.3% decline in April (the worst in more than a year).
CPI is expected to show a slowdown in inflation. Forecasters surveyed by Bloomberg say core CPI is seen as the best indicator of potential stress because it excludes volatile food and energy costs, and core CPI is expected to rise 0.3 per cent in April from a month ago, down from 0.4 per cent in March. Overall CPI is expected to rise 3.4 per cent year-on-year, compared with 3.5 per cent in March.
That is still well above the 2 per cent target set by the Fed. Several US central bankers recently stressed that policy rates may need to stay high for longer, and Michelle Bowman, chairman, said the recent rate of inflation suggested that it might not be appropriate for policymakers to cut interest rates in 2024. However, given the recent rebound in the market, traders are likely to see any signs of progress in fighting inflation as a clue to buying. Matthew Luzzetti, chief U.S. economist at Deutsche Bank AG, expects the Fed to cut interest rates for the first time until December. However, he said, "given the current momentum, investor sentiment is certainly more dovish.