The US CPI is set to make a significant impact tonight, and US Treasury bond bulls are temporarily stepping back to observe

According to Zhitong Finance APP, bond traders are withdrawing their positions and choosing to take a more neutral stance ahead of the release of the U.S. Consumer Price Index (CPI) on Wednesday. The CPI will play a decisive role in expectations regarding whether the Federal Reserve will cut interest rates again this month.

A weekly survey released by JP Morgan on Tuesday showed that after U.S. Treasury prices rose for three consecutive weeks, clients have shifted from the strongest bullish position of the year to a neutral stance.

The CPI data for November, scheduled to be released on Wednesday, is expected to show a slight acceleration in both monthly and annual inflation. This report has become the focus of market attention. Federal Reserve Governor Christopher Waller stated earlier this month that this data, released before the monetary policy meeting on December 17-18, could support maintaining interest rates, although he leans towards a third consecutive rate cut.

While the swap market expects about an 80% chance of a 25 basis point rate cut by the Federal Reserve this month, the resilience of the U.S. economy and concerns that policies from elected President Donald Trump will reignite inflation have opened the door for bets that the Fed may pause rate cuts at some point. After December 18, the market expects the Fed to cut rates about two more times by the end of next year, each by 25 basis points.

The federal funds futures market, which closely tracks Fed expectations, has also shown a similar trend this month, with reduced bets on a rate cut by the Fed this month. The latest open interest data for January and February futures has both declined, indicating that investors are unwinding their long positions.

Here is an overview of the latest position indicators in the interest rate market:

JP Morgan Financial Client Survey

In the week ending December 9, JP Morgan clients shifted their positions to neutral, unwinding long positions while keeping short position levels stable. During this period, long positions decreased by 6 percentage points, and neutral positions increased by the same amount. Direct long positions fell back to levels seen a few weeks ago, while neutral positions reached their highest in two weeks.

U.S. Treasury Options Premium Approaching Neutral

Over the past week, the cost of hedging bond market movements using options has remained balanced, with most contracts trending towards neutrality. This means that the cost of hedging against a rebound is the same as the cost of hedging against a sell-off.

Most Active SOFR Options

Over the past week, a series of secured overnight financing rate (SOFR) options have seen new positions and closures. In terms of new positions, open contracts with strike prices of 95.9375 and 96.125 surged the most. Over the past week, there was a significant amount of closure for contracts with a strike price of 95.625

SOFR Options Heatmap

Among the SOFR options expiring in June 2025, the contract with a strike price of 95.50 remains the most popular.

CFTC Futures Positions

In the week ending December 3, asset management companies increased their net long positions in U.S. Treasury futures, while hedge funds covered their net short positions. In SOFR futures, both types of investors covered their net long positions, marking the first shift to net short positions since July.