Government bonds rally amid dovish bets but remain at risk from tomorrow's CPI numbers Government bonds rally amid dovish bets but remain at risk from tomorrow's CPI numbers Government bonds rally amid dovish bets but remain at risk from tomorrow's CPI numbers

Government bonds rally amid dovish bets but remain at risk from tomorrow's CPI numbers

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  Since Friday's nonfarm payrolls, investors started to unwind their short position, causing the long part of the yield curve to shift lower. The bet is for central banks to keep dovish amid mixed macro data. Yet, tomorrow CPI numbers may force the market hand if monthly inflation numbers exceed expectations. In Europe, yields are falling on the same assumption; however, today's 30-year 0% coupon Bund auction showed that investors keep suspicious of duration despite the tailwind coming from the bond rally.

Today government bond yields are dropping fast on both sides of the Atlantic as investors are positioning ahead of the ECB meeting tomorrow and the Federal Reserve monetary policy decision next week. The shift in positioning in the longer part of the yield curve started last week as nonfarm payrolls disappointed expectations. The straightforward thinking here is that a nonfarm payroll miss leads to lower inflation, thus "lower for longer" interest rates as central banks will extend their accommodative stance until the job market doesn't recover completely. There is also a rising feeling that tomorrow's CPI numbers will undershoot estimates. Some point to lumber falling 30% from its peak at the beginning of May. Yet, investors fail to see that lumber prices are still the highest they have even been at any point in history.

To weigh on yields today are also discussion regarding Biden's infrastructure plan, which seem to find opposition by centrists, thus less likely to pass.

The market might be right into believing that central banks may be keeping monetary policies accommodative in the short-term, but we think it is wrong in expecting that CPI numbers undershooting expectations.

Tomorrow we will be focusing on monthly core CPI numbers. April’s core inflation rose to 0.91%, the highest monthly reading since 1981. The monthly data for May is expected at 0.5%. Although expectations are lower than last month, we have to consider that any surprise in this number may indicate that prices are rising faster and might keep high for a considerable time. Remember, while yearly data are transitory, there is nothing to suggest that monthly data are.

Source: Bloomberg and Saxo Group.

Even though today we have seen 10-year US Treasury yields breaking below the tight range they have been trading since March, a surprise in CPI data tomorrow may mean today’s gains might reverse.

Looking at the 10-year yield  chart, we see that yields have broken below their 100 days simple moving average, they will find support at 1.40%, but if they break this level too, they may fall as low as 1.20%

Don't be fooled. Yields may point lower in the short term, but from a long-term perspective, there is the only way where they can go: higher.

Source: Bloomberg and Saxo Group.

The same can be said about German Bund yields. Today the German Finance Office issued 30-year 0% coupon Bunds. Amid the dovish expectations for tomorrow’s ECB meeting and dropping yields across the eurozone, today’s Bund auction’s results are somewhat troubling. The lowest-accepted bid ended up to be at 91.25, the lowest since January last year and the second-lowest since 2011.

It indicates that although the auction benefitted from tailwinds coming from the bond market's rally, investors continue to treat duration risk with suspicion.

To cut it short, things are not so rosy for bonds as today’s rally might be suggesting.

Source: Bloomberg and Saco Group.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.