Source: Zhitong Finance
Traders remain cautious and wait for more data to confirm that inflation is moving in the right direction, while waiting for the Federal Open Market Committee (FOMC) minutes of the May meeting to be released on Wednesday to provide new clues about the Federal Reserve's policy path.
After the US April CPI data released last Wednesday was better than expected, the market is betting that the Federal Reserve will cut interest rates by nearly 50 basis points this year. However, bond traders have once again expressed doubts about whether the Federal Reserve will cut interest rates twice as expected by the market. The swap market currently suggests that the Federal Reserve will cut interest rates by about 40 basis points by the end of this year. The first rate cut will be in November.
Position conditions suggest that new short bets have been re-established as bond yields have risen in recent days. Meanwhile, long positions on US Treasury bonds have been partially cleared. Traders remain cautious and wait for more data to confirm that inflation is moving in the right direction, while waiting for the Federal Open Market Committee (FOMC) minutes of the May meeting to be released on Wednesday to provide new clues about the Federal Reserve's policy path.
Federal Reserve Governor Christopher Waller (Christopher Waller) said on Tuesday: “If we get enough data, then we can consider cutting interest rates later this year or early next year.” He said that the April CPI data is a reassuring sign that inflation is moving in the right direction, but “several months of good inflation data” are needed before he supports the Federal Reserve's easing of monetary policy.
Recently, uncertainty has brought a complicated background to the US interest rate market, and the market's prejudice against current yield levels and recent trends is generally balanced. This has also fueled the popularity of shorting volatility bets in the options market. Short-betting on volatility is an investment strategy that can pay off if the market remains calm. Furthermore, the cost of hedging the trend of US bonds through the options market is generally neutral, as premiums to hedge against the recent sell-off of long-term US bonds have narrowed in recent weeks.
Demand for hedging increased last week when 10-year US Treasury yields fell to 4.3%, and this position seems to have increased again this week. Meanwhile, in the spot market, J.P. Morgan Chase's latest survey of US bond customers showed a more bullish tone. Net long positions rebounded to their biggest in a few weeks, and short positions turned neutral. The data shows that in the week ending May 20, J.P. Morgan Chase clients cut short positions by 4 percentage points to neutral, while long positions remained unchanged at 17%; the net long positions of all clients have now returned to their highest level since May 6. Hedge funds continued to take the other side, increasing their net short positions on 10-year US Treasury futures by about 145,000 shares, to nearly 7 million shares.
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