There was strong demand for contracts wagering that 10-year yields will breach 4.5%, a level they haven’t exceeded since November. — Bloomberg
NEW YORK: Bond traders are bracing for the risk of a renewed sell-off, driving a surge of trading in options targeting higher yields and prompting investors to unwind long Treasury positions by the most in nearly two years.
The trend gained momentum this week, when there was strong demand for contracts wagering that 10-year yields will breach 4.5%, a level they haven’t exceeded since November.
Tuesday’s flows included a position targeting yields as high as 4.85%, while other flows last week included positions targeting 4.55% and 4.60%.
The 10-year yield was just over 4.3% late Wednesday.
The positioning comes after the bond market was hit by a fresh round of losses this year after sticky inflation and still strong growth drove traders to dial back estimates for how deeply the Federal Reserve will lower interest rates this year.
In Treasury futures, the latest positioning data shows asset managers unwound net long positions by the biggest amount since March 2022, for the equivalent amount of almost 260,000 10-year futures equivalents, during the week that included Feb 13’s hotter-than-expected January consumer price index data.
Meanwhile, open interest data from the session showed front-end short positions building after the producer-price index came in above estimate.
In the cash Treasuries market JPMorgan Chase & Co’s latest client survey released Wednesday showed all-client net long positions dropped to the lowest since April last year.
The past week has seen large shifts across a number of April 10-year Treasury options. This includes the 108 put and 112 call strikes following a huge 50,000 108.00/112.00 downside risk reversal, targeting roughly 4.65% 10-year yield. —Bloomberg
