The upcoming week is set to be pivotal for the bond market, with key economic indicators and policy decisions potentially influencing long-term yield expectations. The imposition of tariffs on Canada and Mexico, alongside the release of the ISM Manufacturing survey and the US jobs report, are expected to provide insights into the strength of the US economy. Analysts, including Apollo Global's Torsten Slok, anticipate an upside in the ISM Manufacturing index, potentially reaching 54, which would align with a robust GDP growth forecast of 3.4% for the first quarter. Such economic strength could delay the anticipated Federal Reserve rate cuts, currently priced in for July, to as late as September.
The potential for heightened inflation due to tariffs and strong economic data could push the 30-year bond yield closer to 5%, as investors adjust their expectations for future interest rates. This scenario underscores the interconnectedness of fiscal policy, economic indicators, and market yield expectations. As traders reassess their positions, the iShares 20+ Year Treasury Bond ETF (TLT), which tracks long-term US Treasury bonds, is closely watched for its sensitivity to changes in interest rates and inflation expectations.
As of 15:11 on January 31, TLT is trading at $87.65, down from its last close of $88.34. The ETF opened at $88.38, with an intraday high of $88.66 and a low of $87.58, reflecting the market's cautious stance ahead of next week's economic data releases.