Not swayed by CPI, the U.S. bond market is more focused on employment data

As the Federal Reserve's policy drivers shift from inflation data to labor market conditions, U.S. Treasury yields reflect a muted response to CPI data, while employment data has a more significant impact on the bond market. Yesterday, data released in the U.S. showed that the CPI for November accelerated both year-on-year and month-on-month, with core CPI year-on-year and month-on-month growth rates remaining the same as in October, and the data fully met expectations. This data reinforced expectations for a rate cut by the Federal Reserve in December but did not stir the U.S. Treasury market. As of Wednesday afternoon local time, the yield on the 2-year U.S. Treasury bond rose by only about 1 basis point, indicating a muted market reaction. Currently, the yield on the 2-year U.S. Treasury bond remains relatively stable, reported at 4.163%. Gang Hu, managing partner of Winshore Capital Partners LP, stated that the volatility of inflation is decreasing, making it easier to predict the Federal Reserve's policy direction. However, he also emphasized that the Federal Reserve is still focused on inflation, but the labor market carries more weight in the decision-making process. According to data compiled by Bloomberg, the recent response of the U.S. Treasury market to the CPI report has been moderate. Over the past five months, on trading days when CPI data was released, the average change in the yield of the 2-year U.S. Treasury bond was about 4 basis points. In contrast, when employment data was released, the volatility in the U.S. bond market significantly increased, with the average change in the 2-year Treasury yield being about 13 basis points. In this regard, Hu explained that the inflation report has now become a 'lagging indicator,' and the incoming President Trump’s promise to implement a comprehensive policy agenda, including a crackdown on illegal immigration and tariffs on trade partners, could have a significant impact on the market. He pointed out: "The market knows Trump is about to take office, and he may completely change the status quo. Investors cannot make too many inferences based on the current inflation data."