The U.S. employment data for January is strong, and traders are betting heavily that U.S. Treasury yields will rise further. The CPI data to be released this Wednesday will be key in testing whether these bets hold true.
According to Bloomberg, the number of open contracts for U.S. Treasuries surged on Friday and Monday, indicating that the increase in short positions is the main factor leading to the decline in Treasury prices.
The U.S. January CPI data will be released this Wednesday. The market generally expects this data to be 3.1%, slightly down from the previous value, but still above the Federal Reserve's target range. Analysts believe this may further increase upward pressure on Treasury yields and weaken market expectations for a rate cut by the Federal Reserve.
Analysis shows that most of the recently established short positions are concentrated in the so-called &#34;belly&#34; of the Treasury yield curve, specifically the 5-year Treasury futures. In trading on Friday and Monday, the risk exposure of open contracts for 5-year Treasury futures increased by $2.8 million per basis point.
Citi strategist David Bieber wrote in a report on Monday that the employment data revision &#34;drove the increase in short positions in the belly of the yield curve.&#34;
Since last Friday's release of U.S. employment data and wage growth exceeding expectations, U.S. Treasury yields have continued to rise. The report indicates that the U.S. labor market remains healthy, with January wage growth exceeding expectations and upward revisions to the data for the previous two months. This data supports the view that the Federal Reserve will take a cautious approach regarding rate cuts.
After Powell stated overnight that the Federal Reserve does not need to rush into rate cuts, Treasury yields rose across the board, with the 10-year Treasury yield increasing by 4 basis points, approaching 4.55%.
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The swap market currently expects that the remaining rate cuts in this policy cycle by the Federal Reserve will be less than two 25 basis points.
In addition, the U.S. government will issue approximately $67 billion in 10-year and 30-year Treasury bonds this Wednesday and Thursday, which will also impact the market.
It is worth noting that last month's slightly easing inflation data had previously driven a rebound in Treasuries. However, an increasing number of investors and consumers are concerned that Trump's tariff policies and the escalating trade tensions will exacerbate inflation in the coming months, which may limit the rebound potential in the bond market

The market currently expects the CPI data to be released this Wednesday to be 3.1%, slightly down from the previous value, but still above the Federal Reserve's target range. Analysts believe this may further increase the upward pressure on U.S. Treasury yields and weaken market expectations for a rate cut by the Federal Reserve

- In January, strong U.S. employment data led traders to bet on rising U.S. Treasury yields, with upcoming CPI data seen as a key test of these bets.  
- The number of open contracts for U.S. Treasuries surged, indicating that new short positions contributed to falling prices, particularly in the 5-year Treasury futures.  
- Analysts expect the January CPI to be 3.1%, which could increase upward pressure on yields and diminish expectations for Federal Reserve rate cuts, while upcoming government bond issuances may also impact the market.

On the eve of the U.S. CPI release, traders are betting on rising U.S. Treasury yields