Investors are closely monitoring the upcoming Consumer Price Index (CPI) report, as a higher-than-expected print could significantly impact Treasury futures. With traders having reduced their net short exposure ahead of the data release, the market is poised for a potential downturn in bond prices if inflation figures exceed estimates. This scenario could influence the Federal Reserve's decision next week, where more than 70% odds currently favor an interest rate cut. However, a hot CPI print might prompt traders to reassess their outlook for 2025, especially considering potential inflationary pressures from lower US taxes under Donald Trump's second term.
The potential for curve steepening strategies to be refreshed is also on the table, as traders anticipate stable short-term rates but rising expectations for longer-term rates. This dynamic could lead to increased demand for higher yields, further pressuring Treasury futures. As inflation risks loom, bond investors may adjust their portfolios accordingly, potentially increasing short positions in anticipation of higher interest rates.
The Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (TMV), which aims to deliver triple the inverse performance of the ICE U.S. Treasury 20+ Year Bond Index, is currently priced at $33.12 as of 02:00 on December 11, slightly down from its last close of $33.22. This ETF is particularly sensitive to movements in long-term Treasury yields, making it a focal point for investors navigating the current inflationary landscape.