Treasury Investors Ramp Up Bullish Positions Before CPI Data

Bond

Summary:

Treasury investors boosted bullish bets before CPI, anticipating Fed rate cuts after weak jobs data. Yields eased, futures priced in easing, with some even eyeing a 50-basis-point September cut.

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Investors are leaning into bullish bets on US Treasuries ahead of this week’s inflation report, as a recent run of softer-than-expected data opens the door for the Federal Reserve to cut interest rates in September and further ease monetary policy in the months ahead.

The market’s dovish stance has been reflected in open interest, or the amount of new risk held by traders: Some 70,000 contracts were added in October fed funds futures following Friday’s lackluster employment report, the largest daily increase on record for that month.

In SOFR options, which closely track the Fed’s policy path, a number of large positions have emerged that look to benefit from an outsized cut of 50 basis points at next week’s meeting, though such a move is seen as unlikely.

“It’s now a lock that the Fed will cut interest rates at their meeting next week and that further rate cuts will follow in the months ahead,” said Bill Adams, chief economist for Comerica Bank. “The question is by how much.”

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Yields on the US 10-year Treasury have dropped from a July peak to their lowest levels in around five months, as bonds rallied after a series of reports suggested that the US economy is cooling. Friday’s data from the Bureau of Labor Statistics further bolstered that view when it showed nonfarm payrolls increased by just 22,000 in August while unemployment rose to its highest since 2021.

In London trading, the 10-year yield was unchanged at 4.08%. The yield on two-year notes, which are sensitive to moves in rates pricing, slipped 2 basis points to 3.54%.

On Tuesday, a BLS report showed the number of workers on payrolls through March will likely be revised lower by a record 911,000. Investors are now awaiting a report on consumer prices, due Thursday.

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Going Big

Wall Street has scrambled to adjust forecasts for what many now expect to be a more aggressive trajectory of rate cuts. Economists at Barclays, for instance, now see a quarter-point rate cut at each of this year’s three remaining meetings, from a previous forecast of just two cuts for the remainder of 2025.

Though interest rates swaps currently price in a full 25 basis point cut for next week, the run of weak data has emboldened some market participants looking for a heftier move.

“We recognize that we are moving early,” said Steven Englander, global head of G10 FX Research at Standard Chartered, in a report ahead of Tuesday’s data on revisions. “But we expect preliminary revisions to employment data for April 2024 to March 2025 to support our 50-bps call.”

Others are less sure the Fed will be that aggressive in September or the months ahead. Fed swaps on Tuesday were pricing in a combined 67 basis points of easing over the three remaining meetings this year, around 8 basis points short of three quarter-point moves.

A 50-basis point cut “would scare the market, as they would ask, ‘are we missing something that the Fed knows about?,” said Jeff Given, senior portfolio manager at Manulife Investment Management.

If employment data recovers in September, “then the Fed may say they can cut at every other meeting for a little time,” he said.

Here’s a rundown of the latest positioning indicators across the rates market:

JPMorgan Treasury Client Survey

JPMorgan’s Treasury client survey showed longs rise by two percentage points and shorts unchanged on the week at the highest since early February.

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Most Active SOFR Options

In SOFR options, across Sep25, Dec25 and Mar26 tenors over the past week there was a heavy amount of new risk added in the 96.25 strike, largely due to demand for Sep25 calls via positions such as SFRU5 96.1875/96.25 call spreads, while there was also outright buying in the strike used to target a half-point Fed cut at the September meeting. There was also demand for SFRZ5 96.00/96.125/96.25/96.375 call condors over the past week. December call condors have also been popular over the past week with flows including SFRZ5 96.1875/96.3125/96.50/96.625 call condors and SFRZ5 96.25/96.375/96.50/96.625 call condors

Treasury Investors Ramp Up Bullish Positions Before CPI Data_5

SOFR Options Heatmap

In SOFR options across Sep25, Dec25 and Mar26 tenors, the 96.125 strike remains the most populated, where a large amount of Sep25 calls lie, largely due to a massive position in the SFRU5 96.125/96.25 call spread which has been built over recent weeks to a size in the region of 350,000 options. The 95.625 strike also contains a heavy amount of open interest largely due to positioning in Sep25 puts and Dec25 calls. There also remains a large amount of 95.75 Sep25 puts in open positions.

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Treasury Options Skew

Treasury options skew in the long-end of the curve has flipped to favor calls in recent sessions, indicating that traders are paying a small premium to hedge a rally in the long-end vs. a selloff, as 30-year yields continue to stretch away from a 5% level.

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CFTC Futures Positioning

In the week ending Sept. 2, asset managers added to net long duration, increasing longs across most Treasury futures tenors. They were most bullish in 10-year note futures, where net long position was extended by around $6.6 million per basis point in risk. On the flip side, hedge funds were bearish 10-year note futures, where net short position was extended by around $5.5 million per basis point in risk.

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Source: Bloomberg

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Owen Li

Central Bank

Reports claiming the Trump administration attempted to remove Fed Governor Jerome Powell have no substantiated basis from primary sources or official announcements as of September 2025.

Potential removal of a Fed Chair could destabilize financial markets, affecting cryptocurrency volatility, but no confirmed legal actions or disruptions have been noted.

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Rumors of Trump seeking legal action to remove Fed Chair Jerome Powell circulate without official confirmation.

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"No public statements have been made on channels referencing a court injunction or the attempt to remove Powell." - Federal Reserve Biography

Analysts Weigh In on Financial and Crypto Implications

Did you know? The Federal Reserve’s leadership roles have historically faced political pressures, but no sitting or former U.S. president has successfully removed a Fed Chair through emergency legal action.

Source: CryptoSlate

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Devin

Economic

The European Union is very unlikely to impose crippling tariffs on India or China, the main buyers of Russian oil, as U.S. President Donald Trump has urged the bloc to do, EU sources said.

An EU delegation, including the EU's Russia sanctions chief, flew to Washington this week to discuss how the two sides can coordinate on sanctions against Russia over its full-scale invasion of Ukraine.

Officials said Trump urged the EU to hit India and China with up to 100% tariffs in order to put pressure on Russian President Vladimir Putin, who relies on energy revenues to fund his country's war in Ukraine.

The European Commission did not respond to a request for comment.

The European Union has imposed extensive sanctions on Russia and also listed two Chinese banks as well as a major Indian refinery in its last package in July.

However, the EU treats tariffs in a different way to sanctions and only imposes them after an investigation typically lasting months to establish a legally sound justification, the sources said.

The bloc has so far only imposed tariffs in the context of the Ukraine war on Russian and Belarusian fertilizers and farm products. The justification for the measures was to prevent creating a dependency that could be exploited and to avoid harm to EU fertiliser producers.

"So far, there is no discussion on possible tariffs neither on India...nor with China," an EU diplomat said.

Furthermore, the EU is in the midst of finalising a trade deal with India, which the bloc is unlikely to want to jeopardize.

Trump's position on India also appeared to ease by Wednesday, when he said he was looking to reset trade relations with New Delhi.

Another EU source said such tariffs were risky and could be too broad and it was easier to sanction specific entities and open the door to delist them if they ended their business with Russia.

Up to now, the EU had limited itself to listing small and unknown entities in third countries, which were often shell companies used to funnel military equipment or dual-use goods for use by Russia's military.

The EU is planning to list banks in two central Asian countries in its 19th package of sanctions as well as Chinese refineries, which could be proposed as soon as Friday.

Source: TradingView

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Olivia Brooks

Economic

U.S. producer prices unexpectedly fell in August amid a compression in trade services margins and mild increase in the cost of goods, suggesting that domestic businesses were probably absorbing some of the tariffs on imports.

The lack of strong producer price pressures, despite import duties, could also be signaling softening domestic demand against the backdrop of a struggling labor market. The Federal Reserve is expected to cut interest rates next Wednesday, with a quarter-percentage-point reduction fully priced in, after pausing its easing cycle in January because of uncertainty over the impact of President Donald Trump's sweeping tariffs."Inflation barely has a heartbeat at the producer level which shows the tariff effect is not boosting across-the-board price pressures yet," said Christopher Rupkey, chief economist at FWDBONDS. "As time goes on one has to wonder if there are slow-growth reasons and weak economic demand that is keeping inflation in check. There is almost nothing to stop an interest rate cut from coming now."

The Producer Price Index for final demand dipped 0.1% last month after a downwardly revised 0.7% jump in July, the Labor Department's Bureau of Labor Statistics said on Wednesday. Economists polled by Reuters had forecast the PPI would advance 0.3% after a previously reported 0.9% surge in July.A 0.2% drop in the prices of services accounted for the fall in the PPI. That followed a 0.7% rebound in July. Services were last month held down by a 1.7% decline in margins for trade services, reflecting a 3.9% decrease in margins for machinery and vehicle wholesaling.

But the cost of services less trade, transportation and warehousing increased 0.3% while prices for transportation and warehousing services shot up 0.9%.

Portfolio management fees increased 2.0%. Airline fares rose 1.0% while the cost of hotel and motel rooms increased 0.9%. Prices for dental services accelerated 0.6%.

Goods prices edged up 0.1% after increasing 0.6% in the prior month. Food prices gained 0.1%, with declines in the costs of eggs and fresh fruits partially offsetting more expensive beef and coffee because of tariffs. Wholesale beef prices surged 6.0% while those for coffee vaulted 6.9%.

Energy prices fell 0.4%. Excluding the volatile food and energy components, producer goods prices rose 0.3% after climbing 0.4% in July, indicating some pass through from tariffs. In the 12 months through August, the PPI increased 2.6% after climbing 3.1% in July.

Economists are expecting price pressures from tariffs to lift consumer inflation in August.

U.S. stocks opened higher. The dollar eased against a basket of currencies. U.S. Treasury yields fell.

Labor market weakness has raised concerns that the economy was stagnating. The government estimated on Tuesday that the economy likely created 911,000 fewer jobs in the 12 months through March than previously estimated.

That data followed the release last Friday of the monthly employment report, which showed job growth almost stalled in August and the economy shed jobs in June for the first time in four and a half years.

Source: Kitco

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Adam

Economic

President Donald Trump and Indian Prime Minister Narendra Modi pledged to talk and resume trade negotiations, signaling a possible thaw after weeks of a blistering fight over tariffs and Russian oil purchases.

“I am pleased to announce that India, and the United States of America, are continuing negotiations to address the Trade Barriers between our two Nations,” Trump wrote on social media Tuesday. “I look forward to speaking with my very good friend, Prime Minister Modi, in the upcoming weeks. I feel certain that there will be no difficulty in coming to a successful conclusion for both of our Great Countries!,” he added.

Modi responded shortly after with a post on X, saying that he was looking forward to speaking with Trump and that the US and India are “close friends and natural partners.”

“I am confident that our trade negotiations will pave the way for unlocking the limitless potential of the India-US partnership,” Modi said. “Our teams are working to conclude these discussions at the earliest.”

As tensions ratchet down, a team of Indian trade negotiators is discussing plans to travel to Washington in coming days, perhaps as early as next week to resume trade talks, a person familiar with the matter said, asking not to be identified as the details aren’t public.

In order to agree a trade deal, New Delhi wants the US to address the 25% reciprocal tariff on Indian exports to America and the 25% additional levy imposed as a penalty for buying Russian oil, the person said.

A spokesperson for the Ministry of Commerce and Industry didn’t immediately respond to an email seeking further information.

Trump’s comments offering a positive appraisal of relations between Washington and New Delhi come even as the US president is pressuring European Union leaders to join him in ratcheting up tariffs on India and China to punish the countries for Russian energy buys.

Trump told EU officials during a meeting earlier Tuesday that he’s prepared to join them if they impose sweeping new tariffs on India and China in a bid to raise pressure on Russian President Vladimir Putin to join ceasefire talks with Ukraine, according to people familiar with the discussions. The US is willing to mirror tariffs imposed by Europe on either country, one of the people said.

That move threatens to further complicate efforts to resolve Trump’s trade dispute with India, exacerbated last month by the US doubling the tariff rate on many goods from the country to 50% over India’s purchases of Russian oil.

Trump appeared to soften his rhetoric on India last week, saying there was “nothing to worry about” in ties between the two countries. Officials in New Delhi said at the time they viewed the comments with caution, and would wait for more signals from the White House.

Sonal Varma, an economist at Nomura Holdings Inc., said comments from both the leaders represent positive signals and increases the chances of India’s 50% tariff rate being lowered in coming months.

However, Trump’s willingness to impose sweeping new tariffs on India and China for buying Russian oil “suggests that the US wants the EU to initiate the next step on Russia-related pressures.” The EU and India are currently negotiating a free trade agreement, which would need to be considered in any decision around additional tariffs, she said.

China, Russia Ties

While India was one of the first countries to open talks with Trump on trade, the imposition of high levies on their exports shocked officials in New Delhi. US officials have expressed frustration with India’s high levies on imports and other non-tariff barriers.

Trump hit India with a 25% rate before doubling that to address New Delhi’s continued Russian energy buys. India has assailed the tariff hikes and insisted that it will continue to buy Russian oil as long as it is financially viable. India has been the largest buyer of Russian seaborne crude as the discounted barrels have helped the world’s third largest oil consumer keep its import bill in check.

The positive signals from Trump and Modi come a week after the Indian leader’s trip to China, where he held talks with Putin and Chinese President Xi Jinping. The US president had criticized the meeting at the time and said India had been “lost” to China.

“The US is India’s largest export market by a wide margin — the value of it is higher than all of the shipment to BRICS’ countries combined,” said Trinh Nguyen, senior economist at Natixis. “As such, the US and India are natural trade partners given complimentary comparative advantages. Both Modi and Trump have strong reasons to mend ties.”

Source: Bloomberg

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Thomas

Economic

The Labor Department's Office of Inspector General said Wednesday it is reviewing the "challenges" that the Bureau of Labor Statistics is facing in its data-collection efforts.

The internal watchdog, in a letter, said it was initiating that probe in light of BLS announcing a reduction in its data collection for two key inflation metrics.

The probe also comes in light of BLS recently issuing a "large downward revision of its estimate of new jobs in the monthly Employment Situation Report," assistant inspector general for audit Laura Nicolosi wrote.

The letter was addressed to William Wiatrowski, who has served as BLS' acting commissioner since President Donald Trump fired the agency's former head in early August in response to a weak monthly jobs report.

Source: CNBC

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Winkelmann

Economic

Forex

Political

BEIJING — Nearly half of U.S. businesses have redirected planned China investments to other regions over the past year — the highest on record — the American Chamber of Commerce in Shanghai said Wednesday.The business chamber's survey of members from May 19 to June 20 came shortly after an escalation in U.S.-China trade tensions and a temporary rollback of some tariffs from mid-May. The two countries last month agreed to extend the trade truce by another 90 days, to mid-November.

"For a company, 90 days, that's just way too short," Eric Zheng, President of AmCham Shanghai, told reporters, pointing out that the supply chain planning is far longer term."At least we don't need to deal with even higher tariffs [for now], but the issue is not going away, it's still here," Zheng said.As many as 47% of the survey respondents said that they had diverted investments planned for China, primarily to Southeast Asia. That's the highest share since the survey first asked the question about plans to shift investments away from China in 2017.

The Indian subcontinent, which includes Bangladesh, was the second-most popular destination for redirected investments, while the U.S. and Mexico ranked far lower.U.S. President Donald Trump has sought to encourage businesses to bring manufacturing back to America, with Trump criticizing Apple's plans to expand production in India. A few companies, especially in advanced technology, have made high-profile announcements to invest in the U.S.AmCham Shanghai's members include Apple, Ford, Honeywell, Meta and Tesla. Jeffrey Lehman, the business group's chair, pointed out that members are affected not just by U.S. tariffs on China, but Beijing's retaliatory duties, since materials needed to build the product often come from the U.S.

U.S. tariffs on Chinese goods stand at nearly 58%, while China's are around 33%, according to the U.S.-based Peterson Institute for International Economics. Tariff rates can vary by product.Competition in China's domestic market is also increasing, while confidence about the five-year local business outlook hit a record low for a fourth-straight year, the AmCham Shanghai study found.

Only 28% of respondents said that their China operating margins in 2024 were higher than that of their global business, while 33% said their China performance was actually worse.U.S. companies also said their Chinese competitors were more advanced in six out of eight categories, especially speed to market and adoption of artificial intelligence. The survey found 41% of respondents said Chinese companies were more advanced in adopting AI, with the share rising to 62% in the retail and consumer industry.AmCham Shanghai members only saw overwhelming advantages over their Chinese competition in product quality and development.

Improving business environment

While trade tensions and worries about China's economic slowdown weighed on the near-term outlook, the survey respondents indicated significant improvement in the local regulatory environment.Nearly half, or 48%, said that the regulatory environment was transparent for their industry, a large jump from just 35% in 2024. The share of businesses saying that lack of transparency was hindering operations fell by 12 percentage points to 16%.The share of respondents indicating that foreign and local companies were treated equally rose by 5 percentage points to 37%.

Beijing in recent years has ramped up its efforts to attract and retain foreign investment, with increased engagement and friendlier policy announcements. Earlier this year, China released an "action plan" that included measures for making it easier for foreign businesses to invest in biotechnology, while clarifying standards for government procurement.However, the AmCham Shanghai survey still found that 14% of the respondents reported a worsening environment for foreign business in China, with the tech sector seeing the highest level of challenges at 31% of industry respondents.