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Big Banks’ Bond Bet: Will CPI Seal the Deal?

by Team Lumida
July 8, 2024
in Macro
Reading Time: 3 mins read
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Key Takeaways

  1. Major banks are betting on a steepening US yield curve.
  2. Inflation data and Fed rate cuts are crucial for this bet.
  3. Economic and political developments will shape bond market trends.

What Happened?

Wall Street’s biggest banks, including Citigroup, JPMorgan, and Morgan Stanley, are betting that the US yield curve will steepen throughout 2024. This trade received a boost after President Biden’s June 27 debate performance eased Trump’s path to the White House, leading investors to anticipate higher yields on longer-term Treasuries.

The yield curve steepened further last Friday when signs of a softening job market increased expectations for Federal Reserve rate cuts, pushing short-term yields down. The gap between 5- and 30-year yields reached its widest since February. However, the market is now looking to the upcoming consumer price index (CPI) data to confirm these bets.

Why It Matters?

A steepening yield curve signals expectations of stronger future economic growth and higher inflation, making it a key indicator for bond investors. The anticipation of Fed rate cuts is crucial for this trade. Cindy Beaulieu, Chief Investment Officer for North America at Conning, believes that both inflation and fiscal policies can drive the steepening trend. Investors are focusing on the CPI data, which Bloomberg’s survey indicates will show the slowest annual rise since January, as this would support the case for rate cuts.

What’s Next?

The Federal Reserve’s actions will be pivotal. If the Fed starts cutting rates aggressively, it could validate the steepening bet by pushing short-term yields down more than longer-term ones. However, skepticism remains. Baylor Lancaster-Samuel, CIO at Amerant Investments, cautions that recent jobs and inflation data do not yet justify significant rate cuts, suggesting the Fed might maintain restrictive rates into 2025.

Meanwhile, Goldman Sachs strategists predict little change in the yield curve by the end of the year, citing past trends during Trump’s presidency when tariffs led to a flatter curve. On the contrary, TD Securities forecasts a potential quadrupling of the spread between 5- and 30-year yields if Fed cuts materialize and high deficits persist.

Source: Bloomberg
Tags: Bond MarketCPIFederal ReserveInflationUS yield curve
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018