Ahead of tomorrow’s CPI release, S3 Partners’ research shows notable shifts in bond ETF positioning as the yield curve flattens. With a third of the curve flattening over the past month, positioning trends across TLT, IEF, and IEI ETFs suggest varied momentum and reversal strategies in short-, intermediate-, and long-term bonds. • Over the past month, the yield curve has flattened by a third. Long-dated yields have increased by 35 bps, while short-dated yields have decreased by 20 bps. • The minimum point on the curve is at the 3-year point, which is where the iShares 7-10 Treasury ETF (IEF) is positioned.

The iShares 20 Year Treasury ETF (TLT) position rose from September to mid-October but reversed after the CPI release and has been falling since then, as bond prices have declined. The position has dropped due to the bond prices falling, consistent with a reversal strategy.

TLT

• iShares 3–7-year Treasury ETF (IEI) have displayed similar patterns. • The iShares 7–10-year Treasury ETF (IEF) (intermediate-term bond ETF) has a short position, with prices falling after a two-month decline. This follows a momentum strategy.

IEF

IEI

• All three bond ETFs—TLT, IEF, and IEI—have fallen. The short positions have decreased in both the short and long-term maturities, while rising in the intermediate term. • This suggests that the intermediate-term bonds could either fall in price or rise in yield, which would cause the yield curve to steepen. • Therefore, bonds are pricing in lower yields for both the short and long ends of the curve. • CPI release dates are 16% more volatile for the S&P 500 and TLT, and 50% to 71% more volatile for IEF and IEI. • Historically, the S&P 500 tends to revert after a CPI release, while bond prices typically continue to follow through. • On CPI dates, short- and long-term bonds follow a reversal strategy, while medium-term bonds follow a momentum strategy. S3’s bond ETF positioning data highlights strategic adjustments and suggests potential shifts in yield expectations ahead of key economic indicators.

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