The U.S. inflation meets expectations, but the price of U.S. bonds is not rising and instead falling. What to do if you are trapped?

The usa's October CPI data has been released, basically meeting expectations, which increases the probability of the Federal Reserve continuing to cut interest rates in December.

不過，當日跟降息相關的資產 $iShares 20+ Year Treasury Bond ETF (TLT.US)$ ，價格卻高開低走，讓不少牛友戲稱“買股不買債”。

自從美聯儲在9月中旬開啟降息週期後，美債利率不降反升，這讓很多投資美債的投資者都被套住了（因為美債價格跟利率成反比）。

今天，牛sir就帶大家看一下，這次10月CPI給大家傳遞了哪些信息，分析一下為什麼最近美債利率不降反升。另外，牛sir也給牛友們支支招，What should be done if caught in a sell-off in US bonds?

What signals did the US CPI in October convey?

Data shows that the US CPI in October increased by +2.6% year-on-year and +0.2% month-on-month; the core CPI in October increased by +3.3% year-on-year and +0.3% month-on-month.

The data released is completely in line with market expectations, with the overall increase mostly consistent with September's data. The year-on-year increase in October CPI slightly rose by 2.4% compared to the previous value. The main factors affecting inflation are rising housing costs, while inflation in the service sector remains high but with a slowing growth pace.

After the data was released, market expectations for a Fed rate cut in December increased. According to FedWatch data, the expectation of a 25 basis point rate cut in December rose from under 60% to over 80%.

Why have US bond interest rates recently risen instead of falling?

Many mooers are puzzled. Even though the expectation of a rate cut has strengthened, why have US bond rates not decreased but instead risen recently? The yield on the US 10-year Treasury notes, known as the 'anchoring of asset pricing,' briefly spiked to 4.5%, mainly due to the following two reasons:

One reason is that US bond rates are suppressed by the 'Trump Trade,' as the market believes that Trump's policies may lead to inflation. Market concerns that this could disrupt the pace of Fed rate cuts, with Trump's victory further driving up the yield on the US 10-year Treasury notes.

Another reason is that the employment situation has not deteriorated significantly. In September, non-farm payrolls surged by 254,000 jobs. Although non-farm payrolls only increased by 12,000 jobs in October, the market interpreted it as being due to the impact of hurricanes and the Boeing strike, so Wall Street chose to ignore it. Employment is an important indicator for the Federal Reserve's decision to cut interest rates. If employment is poor, the Fed will consider a faster pace of rate cuts.

These two reasons have caused the price of U.S. bonds to continue to fall. $iShares 20+ Year Treasury Bond ETF (TLT.US)$ is the largest U.S. bond ETF, which tracks U.S. Treasury bonds with a maturity of 20 years or more. The price of TLT has dropped from the September high of $101 to $90, a 10% decrease, with few rebounds along the way, trapping many investors tightly.

What to do if you are stuck buying U.S. bonds at high prices?

For those mooers who bought TLT at high prices and do not want to sell at a loss, they can consider using options Covered Call strategy to reduce the holding cost.

The Covered Call strategy is very simple, holding 100 shares of the underlying stock + selling a call option.

In this strategy, you are the option seller. While receiving an option premium by selling the call, you are obligated to sell the corresponding stock at a certain price when the exercise conditions are met at maturity.

Usually used when you are bullish on a stock for the long term, but think the stock price will fluctuate or decline in the short term, so you can earn extra money while holding the shares.

For example, if you hold 100 shares of TLT with a cost of $92, and you think the price of TLT may fluctuate or slightly decline in the next two months, but you are willing to sell if it goes back to $92.

Then you can choose to sell a two-month expiry Call with a strike price of $92. Assuming the price of this Call is $1, you will receive $100 in option premium after selling it.

Since you already hold 100 shares, you only need to sell 1 Call for the specific operation, and Futubull will automatically help you form a Covered Call strategy.

If you hold this Call until expiry, there will be two scenarios:

- If TLT price > $92, you will sell your 100 shares of TLT at $92 and receive $100 in option premium.

- If TLT price < $92, you will keep your 100 shares of TLT and receive $100 in option premium.

Therefore, by selling calls, you can earn some option premium to offset losses. However, when using this method, it is important to note that selling 1 Call represents 100 shares. If you do not hold enough shares, the excess will become a naked Call, which poses higher risks. Therefore, it is best to sell the corresponding number of calls based on the shares you hold for a more prudent approach.

Furthermore, Covered Calls restrict potential gains. If TLT rises to $95 at expiry, you will still sell at $92 and miss out on $3 per share in profit.

Mooers can learn more about Covered Call operation methods through the following courses:Covered Call sell out of cash options。

However, Sir Bull still wants to remind you of the risks.Regarding risks.Market trends are ever-changing and often lead to unexpected situations. Therefore, Mooers are advised to assess their own risk tolerance, implement a suitable strategy, and avoid significant losses.

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