The market's response to recent tariff announcements is reflected in a bear flattener trade, indicating concerns over short-term inflation and long-term growth prospects. Investors are increasingly net long on longer-dated Treasuries, viewing them as a hedge against inflationary pressures expected from tariffs. This shift is accompanied by a rise in net shorts in SOFR futures, suggesting anticipation of hig
The imposition of new tariffs by President Trump has introduced significant uncertainty into the financial markets, particularly affecting the dynamics between short and long-term interest rates. The tariffs, targeting Mexico and Canada, are expected to increase inflation risk, leading to higher short-term rates. This scenario poses challenges for steepeners, which typically benefit from a widening spread b
According to a recent report by BofA Global Research, U.S. fixed income funds experienced robust inflows, particularly into long-term sovereign and corporate funds, reflecting a flattening bias in the yield curve. The report, dated February 3, 2025, notes that while short-term U.S. Treasury (UST) fund inflows have cooled, intermediate- and long-term UST fund inflows have picked up. This trend is further sup
The upcoming week is set to be pivotal for the bond market, with key economic indicators such as tariffs, ISM surveys, and the US jobs report on the horizon. These data points are expected to reflect a robust economy, potentially delaying the anticipated rate cut to September due to rising price pressures. The imposition of tariffs on consumer goods, food, cars, and medical equipment could exacerbate inflat
The upcoming week is set to be pivotal for the bond market, with key economic indicators such as tariffs, ISM surveys, and the US jobs report poised to influence long-term interest rates. Analysts anticipate that these data points will reflect a robust economy, potentially pushing back the first expected Federal Reserve rate cut to September due to rising inflationary pressures. The imposition of tariffs on
Rising inflation pressures, as highlighted by recent PCE, CPI, and PPI reports, are keeping long-dated bond yields elevated, challenging the bond market's expectations of a potential Fed rate cut in June. The latest PCE report showed an increase in the Fed's preferred inflation measure to 2.6% from 2.4%, with core inflation steady at 2.8%. This follows earlier reports of CPI rising to 2.9% and PPI reaching
Citi's latest analysis suggests a bullish outlook for U.S. Treasuries as the Treasury Department is expected to maintain nominal coupon sizes at the upcoming February refunding meeting. The report, dated January 24, 2025, highlights that the Treasury's reliance on T-bills is likely to continue, with no immediate plans to increase coupon auction sizes. "We expect continued guidance for nominal coupon sizes t
Bond investors are increasingly betting on a continued steepening of the yield curve, with the 2s10s spread nearing a three-year high. This trend reflects expectations of future economic growth and inflation, as short-term yields decrease relative to long-term yields. Non-US investors are showing interest in steepener trades, capitalizing on potential policy shifts and economic outlooks. The sales of long-e
The 30-year Treasury yield has declined by 15 basis points since January 14, 2025, leading to a flattening of the IG 10s30s non-financial spread curve by 4 basis points since mid-December, according to a recent BofA Global Research report. However, BofA analysts anticipate a reversal in February, driven by increased 30-year bond issuance and yield-sensitive demand. "We see risks of steeper curves in Februar
The recent rally in global government bonds, including US Treasuries, underscores the market's sensitivity to inflation expectations and policy signals. Investors are closely watching inflation data and tariff developments, as these factors significantly influence Treasury yields. The retreat in yields suggests that the market requires sustained inflationary pressures to maintain levels above 5%, a threshol
According to a recent report by BofA Global Research, U.S. fixed income funds have experienced robust inflows, particularly favoring long-term U.S. Treasuries (USTs), as interest rates continue to rise. The report, dated January 21, 2025, highlights a "modest preference for the long end over the front end," indicating a curve flattening bias. November's Treasury International Capital (TIC) data revealed sig
Citi's latest analysis highlights the ongoing volatility in Treasury yields, which remain elevated above pre-Fed levels from the fall of 2024. Despite this, high yield spreads have shown remarkable stability, maintaining levels below 300 basis points for 75 consecutive days, a stretch not seen since 2007. Citi analysts note that the current Treasury sell-off is characterized by a normalization of the yield
The US economy continues to demonstrate resilience, with underlying drivers of consumption supporting retail sales despite a slight miss in expectations. Lower mortgage rates and easing bank-lending conditions for consumer loans are key factors bolstering consumer spending. These dynamics, coupled with the high average duration of mortgages, have mitigated the impact of Federal Reserve rate hikes, allowing
The anticipation of rising inflationary pressures, as indicated by the upcoming Producer Price Index (PPI) report, is creating a bearish outlook for bonds. Economists forecast December's core PPI to have accelerated to 0.3% m/m and 3.8% y/y, up from 0.2% and 3.4% respectively in November. This increase suggests potential monetary policy tightening, as bond investors may use the PPI as a proxy for the Consum
Investors are increasingly wary of long-duration assets as rising inflation expectations and uncertainty reshape market dynamics. The recent University of Michigan Consumer Sentiment Survey highlights the highest long-term inflation expectations since 2008, signaling a shift in investor sentiment. This change is reflected in higher long-term Treasury yields, as investors demand greater compensation for futu
The Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (TMV) is drawing attention as technical indicators suggest further increases in 30-year Treasury yields. According to Elliott wave theory and mean reversion analysis, the 30-year Treasury is entering a prolonged wave 3, potentially pushing yields up by another 50 basis points. This scenario is supported by expectations of stronger inflation data, inclu
The TMV ETF, which aims to deliver three times the inverse performance of the ICE U.S. Treasury 20+ Year Bond Index, is poised to react to the latest labor market data. Lower-than-expected US payrolls figures could trigger increased buying in longer-dated US Treasuries, potentially leading to a short-squeeze due to the current excessive short positioning. This scenario aligns with expectations for more than
The Treasury market is poised for potential volatility as investors await the release of the non-farm payrolls data, which could significantly influence Federal Reserve policy decisions. Employers are expected to have added 165,000 jobs last month, a figure that might prompt the Fed to reconsider the necessity of rate cuts in a robust economic environment. With average hourly earnings projected at 4%, well
The TMV ETF, which aims to deliver three times the inverse performance of the ICE U.S. Treasury 20+ Year Bond Index, is drawing attention amid rising long-term UK government bond yields. Investors are demanding higher risk premiums to hold UK assets, reflecting concerns over fiscal sustainability and the Bank of England's (BOE) limited room for rate cuts. The surge in yields, particularly at the longer end
Citi Research outlines its top five rate trades for 2025, emphasizing a strategic approach amid market uncertainty. The report suggests a cautious stance on the U.S. Treasury market, with a focus on tactical positioning to navigate potential volatility. Citi analysts recommend a long position in 2-year swaps paired with a short 3-month 2-year receiver, capitalizing on what they see as an overreaction in mar