Bond investors are maintaining a bearish outlook ahead of the upcoming Consumer Price Index (CPI) report, driven by expectations of persistent inflation and potential shifts in Federal Reserve policy. Recent data, including a robust Producer Price Index (PPI) report, has reinforced concerns about rising inflation, particularly with components like airfares showing significant increases. This has led to a preference for higher yields, as evidenced by the 30-year bond yields topping 5% for the second time in three days. The market's focus remains on inflationary pressures, with bearish bets in 10- and 30-year dollar swaps and sales by insurers contributing to the downward pressure on bond prices.
Despite the prevailing bearish sentiment, there are contrarian views in the market. Some investors are placing bullish bets on bond options, suggesting a belief in a lower-than-expected CPI outcome. However, the general reluctance among Treasury investors to support bond prices ahead of the CPI release reflects the uncertainty and caution stemming from last week's unexpectedly strong payroll data. The anticipation of higher long-term rates relative to short-term rates is also evident in the popularity of bond steepeners, indicating expectations of a steeper yield curve.
The iShares 20+ Year Treasury Bond ETF (TLT), which focuses on long-term U.S. Treasury bonds, is currently trading at $85.22 as of 15:01 on January 14, slightly down from its last close of $85.43. The ETF's performance mirrors the broader market sentiment, with investors cautious ahead of key inflation data releases.