Investors are positioning ahead of the CPI report, with record short interest in long-term bonds indicating expectations for higher long-term rates. Meanwhile, intermediate bonds show bullish sentiment, suggesting stable or lower rates. The yield curve is steepening at the long end, while the short-term market remains unfazed, expecting minimal policy changes from the Federal Reserve.

Ahead of the CPI report, we see that TLT short interest is at a record high. This indicates that investors are shorting bonds and expecting higher long-term rates.

At the same time, IEF (intermediate bonds) has a low short position, which is bullish, indicating an expectation of lower rates in the intermediate term.

Combining these two graphs, the market is expecting a steepening curve at the long end and a flatter curve in the middle.

The short end of the curve has been fixed, but the long end has come down, meaning that investors holding long-term bonds have benefited. This represents a parallel shift, not distinguishing between long and intermediate bonds.

Tariffs may have an inflationary impact, but it is too early to discuss this as part of this CPI report, although stocks are moving in response to it.

One sector affected is the metals and mining sector, but there are many different sectors and industries that could be impacted. The metals and mining sector has already moved on this news.

On the short end, the CME Fed tool shows a 95% chance of unchanged rates and only a 5% chance of a rate cut.

Market forecasters are saying that the January 2025 CPI report could show some inflation, but not enough to alarm the Federal Reserve.

There are some signs of demand for inflation swaps.

A surprise inflation number could cause the FOMC to cut rates, but the markets are not overly concerned.

The solid January jobs report from last week was the headline. However, other data were also positive and stronger than expected.

The bond market’s positioning suggests a divergence in rate expectations, with long-term yields under pressure while intermediate rates remain stable. Despite mild inflation concerns, market sentiment reflects confidence in the Fed’s current stance. Short interest trends and yield curve shifts indicate a complex but measured response to macroeconomic data.

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