Traders are worried that the US bond market’s recent selloff may have further to go.
The cost of insurance against a continued push higher in Treasury yields — most notably in the long-end of the curve — has jumped to the highest since last September, options trading shows.
There’s been a pick-up in demand for 10-year options covering the risk that yields will push over 4.85% or more by the end of October, up from roughly 4.55% now. Meanwhile, JPMorgan Chase & Co.’s latest Treasury client survey reports that short positions rose to the highest levels in five weeks, while futures positioning data shows that hedge funds extended short bets and asset managers trimmed long positions in bonds.
The moves reflect the increasingly bearish sentiment toward the bond market since policymakers at the Federal Reserve last week signaled they’re likely to keep interest rates elevated well into 2024. That has pushed yields higher as traders recalibrate expectations.The skew shown on premium paid for hedging a selloff in long-bond futures rose to 250 basis points by the end of trading on Monday, the highest since September 2022 and up from around 80 basis points two weeks ago.
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