Source: Wall Street News
Currently, the swap market is expected to cut interest rates by about 40 basis points by the end of the year, but after the CPI inflation data for April was released last Wednesday, the market was optimistic that interest rate cuts would be close to 50 basis points during the year.
Expectations of interest rate cuts have cooled down over and over again. As many Federal Reserve Board members said they were “not in a hurry to cut interest rates,” US debt bears made a comeback, and bond traders cut their bets on cutting interest rates twice during the year.
Currently, the swap market is expected to cut interest rates by about 40 basis points by the end of the year, of which interest rates will be cut by 25 basis points in November. However, after the release of CPI inflation data for April last Wednesday, the market was optimistic that interest rate cuts would be close to 50 basis points during the year, that is, 25 basis points of interest rate cuts twice.
Meanwhile, positions show that as yields have risen in recent days, new short positions have been restructured, and some long positions on more mature government bonds have been closed. Since May 16, 10-year US Treasury yields have cumulatively increased by more than 10 basis points.
Traders are generally cautious, waiting for more data to confirm that inflation is moving in the intended direction, and for the minutes of the latest US Federal Reserve Open Market Committee (FOMC) meeting to be released later to obtain new clues about the Fed's policy path.
Federal Reserve Governor Waller told the media on Tuesday: “If we get enough data in the right way, then we can consider cutting interest rates later this year or early next year.”
Waller said this week 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. According to data released last week, the US core CPI fell to 3.6% year on year in April, the lowest increase since April 2021, and the month-on-month growth rate declined for the first time in 6 months.
Furthermore, according to a recent J.P. Morgan Chase survey, hedge funds have increased the net term short positions equivalent to 10-year US Treasury futures by about 145,000, and net term short contracts by nearly 7 million.
However, while hedge funds have increased their short positions, asset management companies have been increasing their long positions on US bonds. In the week ending May 14, asset management companies increased long-term long positions for the fifth week in a row, an increase equivalent to about 290,000 10-year US Treasury futures contracts.
editor/tolk