Ahead of CPI Data, Traders Bet 50% Chance of September Rate Hike, Bond Market Pricing Leans Toward Mild Data

August 12th, according to the derivatives market trading activity, the probability of a 25 basis point rate hike currently implied by traders is about 50%. Following the unexpected weakness in July nonfarm payrolls, Wall Street has almost a 50:50 extreme split pricing on whether the Fed will raise rates by 25 basis points in September, and the Fed led by Powell has significantly reduced forward guidance, forcing the market to rely on hard data to determine the policy path.

The impact of July CPI has shown clear asymmetry — that is, moderate inflation data can further weaken the case for a rate hike, but unexpectedly hot data is more likely to quickly turn a September rate hike back into the baseline scenario. For the "anchor of global asset pricing," the 10-year U.S. Treasury yield, the current bond market risk-reward profile has actually significantly shifted towards "rapid yield decline driven by the mild July CPI," mainly because macro data and CTA bond positioning are resonating positively. (Securities Times)