Traders Are Betting More Aggressively Ahead of Economic Data

livemint.com:

Bond traders are laying down wagers hours ahead of key readings on the U.S. economy, a sign of confidence that they know how new data will shift markets. After the pandemic’s disruptions and the Federal Reserve’s fastest interest-rate hiking campaign in decades, many now feel like they know which way the central bank and the economy are generally headed.

Investors expect the Fed to begin trimming interest rates later this year, so the data mostly shifts their expectations for when. Highly traded futures markets tied to U.S. Treasurys are posting sharp moves leading up to major reports on jobs, inflation and economic growth, according to an analysis of trading since the start of 2022 prepared for The Wall Street Journal by Alexander Kurov, professor of finance at West Virginia University.

Bond futures typically swing 0.14 percentage point in reaction to seven key economic releases, Kurov found. Nearly half of that move has already happened before the data comes out, kicking off up to six hours ahead of the scheduled announcement. That marks a shift from earlier years, when preliminary moves tended to concentrate in the half-hour or so before the data.

“The price drift starts much earlier than we found in our previous research," said Kurov. “Traders know if they start betting five minutes before an announcement, it’s kind of too late." Aggressive positioning threatens to rattle an already unsteady market. Bonds have been volatile since the Fed started tightening roughly two years ago.

The 10-year Treasury yield, a benchmark for lending rates that rises when bond prices fall, is nearing two years of relatively sharp daily swings. Few think anyone is cheating. Research from Kurov and others previously suggested early trading