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. This, coupled with potential tariff impacts on consumer goods and other sectors, could heighten inflation expectations, thereby delaying anticipated Federal Reserve rate cuts.
The potential for stronger-than-expected economic data and tariff implementations could push the 30-year bond yield closer to 5%, as traders reassess the timeline for monetary easing. Currently, the market is pricing in a rate cut by July, but a trifecta of inflation-enabling surprises could shift expectations to September. This scenario underscores the interconnectedness of fiscal policy, economic indicators, and market yield expectations, as investors adjust their strategies in response to evolving economic conditions.
As of 15:11 on January 31, the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (TMF), which seeks to amplify the performance of long-term US Treasury bonds, is trading at $39.86, down from its last close of $40.85. The ETF's movement reflects the broader market's anticipation of rising yields and the potential impact of upcoming economic data and policy decisions.