Pricing out US bond rally ahead of CPI

While global markets are focused on the US CPI data, a bond rally was priced in the options market before the data. The market is preparing for a bond rally ahead of the critical US April consumer inflation data. The options market is pricing in a US 10-year bond yield that will fall by approximately 15 basis points from its current level to 4.3 percent. Alex Manzara, a derivatives broker at RJ O'Brien & Associates, who noted that there was a lot of positioning in both directions, said, “However, recently there has been a stronger tendency to position against the possibility of easing.” Economists expect US annual consumer inflation to fall slightly from 3.5 percent in March to 3.4 percent in April. Core inflation is expected to fall from 3.8 percent to 3.6 percent. According to Bloomberg Economics, core inflation will see its lowest level of the year. Bloomberg Economics economists, who point out that inflationary pressure will continue in some categories, believe that wage increases in the food sector, which will push food prices up, will contribute significantly to April inflation. Economists noted that Tuesday's producer inflation data reflected a sharp decline in air travel prices, which could have a downward impact on core inflation and core PCE.