On Wednesday of this week, the U.S. CPI data and the Federal Reserve's interest rate decision will take the stage one after another, ensuring that the market will not be calm, and global investors have already begun to prepare for the worst and stand ready.
Following the unexpected strength of the non-farm payroll data last Friday, traders are quickly unwinding their bullish bets on U.S. Treasury bonds; in Asia, traders are on high alert, preparing to "stay up all night to prepare for battle."
U.S. Treasury bulls are closing positions overnight.
Pricing in the U.S. Treasury futures market indicates that expectations for the Fed to maintain high interest rates for an extended period currently prevail, replacing the previous optimistic expectations of an approaching rate cut.
Data shows that since last Friday, the open interest in U.S. 10-year Treasury futures has decreased by about 80,000 contracts, reflecting that traders are unwinding their bullish bets.
A survey by JPMorgan Chase among its U.S. Treasury clients shows that net long positions have dropped to a two-month low. Specifically, in the week ending June 10th, JPMorgan Chase's U.S. Treasury clients reduced their long positions by 7 percentage points, adopting a neutral stance, which brought net long positions to the lowest level since April 8th. During the same period, direct short positions remained unchanged.
Advertisement
After the release of last Friday's employment report, the yield on the U.S. 10-year Treasury note climbed from a low of 4.27% to nearly 4.48%, indicating that traders significantly adjusted their rate cut expectations.
Faced with the "double impact" on Wednesday, Nathan Thooft, Global Chief Investment Officer at Manulife Investment Management, said: "In the face of such meetings, we are unwilling to hold large positions betting on any direction. Given the uncertainty of the Fed's policy direction and its timing, we have generally reduced the size of our bets this year."
John Madziyire, Senior Portfolio Manager at Vanguard Group, also said: "We have become very cautious before the CPI data and the Fed meeting, lightening our positions."
In the options market related to the Secured Overnight Financing Rate (SOFR), traders have started betting on policy rates remaining high in recent weeks, and even continuing into late next year or even early 2026.Asian Traders on High Alert
Due to time zone differences, traders in Asia have to work overtime in the early morning hours to cope with the potential significant fluctuations in the stock, bond, and foreign exchange markets that may be caused by the release of U.S. inflation data and the Federal Reserve's interest rate dot plot.
According to media reports, Motonari Sakai, the head of the Tokyo division of the foreign exchange and financial products trading department at Mitsubishi UFJ Trust Bank, is preparing to stay up all night for the most important day of the month:
"I have no dinner plans, and I'm also planning to avoid drinking at home, just to be able to focus on watching the U.S. CPI release, and then I might stay up all night waiting for the Fed's decision announced at 3 a.m."
Sakai is not alone.
In Singapore, Vishnu Varathan, the head of economics and strategy at Mizuho Bank, said he will set an alarm clock to greet an unusually early morning:
"The ideal way to prepare is to take a day off, take a nap in the afternoon, wake up at 11 p.m., make a cup of coffee, have some snacks, and sit in front of the computer waiting."