Concerns about inflation rebound continue to intensify, prompting US bond investors to increase their hedging efforts to prevent prices from further falling.

At a time when the fragile ceasefire agreement was reached between the US and Iran and market uncertainty still exists, the $31 trillion US Treasury market is facing a crucial test. Investors are becoming noticeably cautious before the latest inflation data is released, increasing their hedging efforts through options tools to guard against the risk of further bond price declines and rising yields. Market data shows that traders significantly increased their hedging positions against rising yields on 5-year and 10-year US bonds on Thursday, reflecting growing concerns about inflation rebound. Previously, influenced by a significant increase in oil prices, the market generally worried about inflation pressures resurfacing. Brent crude oil prices have risen by about 60% so far this year. Meanwhile, a survey released by JPMorgan showed that net long positions in the cash market fell to their lowest level in nearly three weeks, indicating that market sentiment is becoming cautious. Analysts point out that last week's stronger-than-expected job data eased concerns about economic growth and refocused market attention on inflation risks. According to economists' forecasts, the upcoming release of the Consumer Price Index (CPI) may see the largest monthly increase since June 2022. The investment manager at asset management firm Brandywine Global stated, "The market is currently either focusing on inflation or on employment, and with the decent performance of employment, inflation has become the dominant factor." Recent fluctuations in US bond yields have been significant. The current 10-year US Treasury yield is around 4.27%, a significant increase from the 3.94% at the end of February. Although some investors are betting on a short-term decline in yields, overall, the market tends to guard against further upward movement of interest rates. In terms of rate expectations, investors have significantly lowered their bets on future Fed easing. Currently, the market only expects about a 30% probability of a 25 basis point rate cut in the future, compared to earlier expectations of two rate cuts. Institutional viewpoints generally believe that there is limited downside potential for rates in the short term. The head of rate strategy at Amerivet Securities stated, "Against the backdrop of strong employment data and the possibility of continued upward inflation, we do not believe that rates can continue to decline." This concern is also reflected at the policy level. The latest meeting minutes of the Federal Open Market Committee show that an increasing number of Fed officials are concerned that the Iran conflict will raise inflation and may even affect long-term inflation expectations, making them more sensitive to energy prices.