US Treasury bonds rebounded weakly, traders focus on this week's CPI, concerns about inflation resurface

Given the strong September non-farm payrolls in the United States reigniting inflation concerns, traders are anxiously awaiting the release of CPI data on Thursday, with lackluster rebound in U.S. bonds on Tuesday.

On Tuesday, October 8th, U.S. bonds rose across the board during the trading session, ending a four-day losing streak. Short-term bonds led the rise in U.S. bonds, with European stocks seeing a drop of around 6 basis points in the two-year bond yield, the ten-year bond yield dropping over 3 basis points to fall below 4%, and the thirty-year bond yield dropping nearly 3 basis points.

However, U.S. bonds later retreated, with long-term bonds being sold off and turning lower. In pre-market trading, the ten-year U.S. bond yield rebounded by around 3 basis points to 4.053%, hovering at its highest level since August 1st.

After the non-farm payrolls significantly exceeded expectations, the market continues to bet on a strong U.S. economic recovery, while inflation concerns resurface. Expectations of a significant rate cut by the Federal Reserve have cooled down, leading to a decrease in enthusiasm for buying U.S. bonds, with long-term bond yields still above 4%.

Jim Reid, a strategist at Deutsche Bank, stated that increasing concerns about inflation risks prompted a new round of bond selling yesterday as investors lowered their expectations for a rapid rate cut by the Federal Reserve.

Reid also mentioned that the recent rise in oil prices has pushed up U.S. bond yields, as this could reignite inflation pressures.

"With the rise in oil prices and strong U.S. macroeconomic data, investors are further pricing in inflation risks. In fact, the U.S. two-year inflation swap rate rose to 2.39% yesterday, hitting the highest level in nearly three months, after briefly dropping below 2% at this time last month."

Patrick Armstrong, Chief Investment Officer at Plurimi Wealth, stated on Bloomberg TV:

"The market is indeed somewhat ahead of itself in pricing in Fed rate cuts. I think by 2025, inflation may once again become an issue."

St. Louis Fed President Musalem also warned on Tuesday that further rate cuts should be gradual.

To find clues about the Fed's next move, traders are currently focusing on Thursday's CPI data, expecting the data to show a gradual slowdown in U.S. price growth. At the same time, traders are also monitoring the demand levels for the three-year and ten-year bond auctions on Tuesday and Wednesday.

However, Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, has no doubts about further slowing of U.S. inflation, stating that investors still need to prepare for rate cuts, with expectations of the Fed cutting rates by half a percentage point in November and December.

"U.S. data is not strong enough to signal the end of the global rate-cutting cycle for the Fed."

According to the CME FedWatch tool, the market currently expects an 88.7% probability of a 25 basis point rate cut at the Fed's meeting on November 7th. A week ago, the probability of a 50 basis point rate cut in November was estimated at 36.8%, but now it is zero In addition, the market also expects the Federal Reserve to cut interest rates by about 50 basis points by the end of this year, and by less than 150 basis points by October 2025. This expectation is a decrease of about 200 basis points from the end of September