The bond market is experiencing a bear steepening trend as investors refocus on supply and positioning, with longer-term yields rising faster than shorter-term ones. This shift signals expectations of higher future interest rates. The recent delay in tariffs on Mexico and Canada, along with China's symbolic countermove, has reduced market volatility, creating favorable conditions for corporate bond issuers. As a result, the corporate pipeline is bustling with activity, with a dozen deals already in progress, surpassing initial estimates of eight. This increased issuance is expected to put upward pressure on bond yields as investors demand higher returns to absorb the additional supply.
The JPMorgan Treasury all-client survey highlights the largest outright short positions since October, with the fewest net longs since December, indicating a bearish sentiment in the bond market. Dealer expectations suggest that Commodity Trading Advisors may incrementally add to these short positions, further contributing to the bearish outlook. Hedging and rate-locking flows associated with the new deals are likely to weigh on bonds, driving yields higher.
The iShares 20+ Year Treasury Bond ETF (TLT), which aims to track the performance of long-term U.S. Treasury bonds, is currently trading at $87.61 as of 09:54 on February 4, slightly down from its last close of $88.16. The ETF opened at $87.55, with an intraday high of $87.64 and a low of $87.48, reflecting the broader market dynamics and investor sentiment towards rising yields.