Bond Traders Await US Inflation Data Behind Half of 2024’s Rout

Nothing has been setting the US bond market’s direction this year more than the monthly inflation figures. This week will be no exception.

The release of the April consumer-price index on Wednesday is poised to provide the biggest test yet of the rally that started this month when Federal Reserve Chair Jerome Powell swatted away worries that the central bank may raise interest rates again. It gained steam after the Labor Department reported a slowdown in job growth, and those gains continued into Monday, with rates down about 1 basis point across the curve as of 8:12 a.m. in London.

The advance has increased the stakes in the upcoming inflation data — which could either extend it or doom it as another ill-fated turnaround. Bank of America Corp. strategists said the market will be in a “holding pattern” until then.

This year’s previous CPI reports fueled bond-market selloffs as faster-than-expected readings fanned worries that the Fed’s gains against inflation have stalled.

The last one, on April 10, sent 10-year Treasury yields surging 18 basis points, the biggest one-day move caused by the CPI data since 2002. All told, half of the more than 60-basis-point jump in that benchmark rate this year occurred on days when the CPI was released.

“The reality of the market right now is where we lurch from data release to data release,” said Jonathan Cohn, head of US rates desk strategy at Nomura Securities International. “There does seem to be some kind of economic softening here — but effectively what it will take for this rally to sustain is the sign off from the CPI data that things aren’t re-accelerating, that we are seeing disinflation come through.”