Treasury bonds fell slightly on Wednesday Amid conversations about tax cuts in the United Stateseven when bond operators begin to protect themselves to a possible economic slowdown by making bets that a great market rebound will soon be strengthened.
The yields rose between one and two basic points throughout the curve on Wednesday after the Republicans of The House of Representatives will approve a budget project that foresees deep tax cuts that could increase The American deficit at US $ 3,000 billion in ten years. The 10 -year rate was negotiated at 4.31%.
Even so, American returns are very close to the minimum of the year achieved Tuesday after a rebound in treasure bonds that reduced the 10 -year rate From 4.57% of a week ago. Option operators are changing their positions as the US economy, which already shows signs of weakness, faces more pressure under Donald Trump’s tariffs.
“There is a tone of risk aversion as concerns continue to increase the impact of President Trump’s agenda in the performance of the global economy ”Said Ian Lyngen, head of American rates strategy in BMO Markets Capital, in a note.
The United States Secretary of the Treasury, Scott Besent, fed the upward bets on Tuesday, a day after Trump confirmed that the tariffs to Canada and Mexico will enter into force next week, saying during an event in Washington that the yields at 10 years should fall “naturally” with Trump’s policy.
On Tuesday morning an outstanding position arose that points to A 10 -year performance drop up to 4.15% And more. Around US $ 60 million were spent on the bet, which will generate profits of approximately US $ 40 million if the yields fall up to 4%, according to Bloomberg calculations. If the yields re -test the minimum of September, the position could knead a fortune of approximately US $ 280 million.
Derivative operators are also looking for yields in short -term bonds. In the last sessions, a growing long position has been accumulated in futures of federal funds, which will benefit from a cut of interest rates by the Federal Reserve already at the Monetary Policy Meeting of May 7. The open interest, or the amount of future positions held in the May contract, It has increased more than 50% since the beginning of last week, since the operators provide greater flexibility of policies of the central banks throughout this year.
The swaps of The Fed is now discounting a probability of about 21% of a rate cut in May, Faced with a probability of just 8% a week ago. Until this week, a narrow range of Fed policy results has maintained yields in a narrow range.
In the cash market, the operators are also beginning to be more optimistic. A survey conducted JPMorgan Treasury Bond Clients showed that in the week until February 24, Long net positions had increased to the highest level from January 27.
Below is a summary of the latest positioning indicators in the rate market:
JPMORGAN Treasury Customer Survey
In the week ended on February 24, the JPMorgan Treasury Bond Customer Survey showed that direct long positions increased 3 percentage points, which raised the net positioning among customers to the longest since January. Direct short positions fell 1 percentage point in the week and neutral positions fell 2 percentage points.
Treasury options cousin
The options for the coverage of options in the treasure bonds has spread over the last week To increasingly favor operators who pay to cover a rebound at the long end of the curve, to the highest price from August.
This is shown by the sale/purchase bias in long -term bond futures, which has continued to increase, favoring purchase options. A prominent flow in the options on Monday included short -term coverage within 10 years, with the objective of a performance drop to around 4.2% for the expiration of March 7.
Another recent popular theme in the Treasury options have been short volatility expressions through sales of strangulations and Straddle. Monday’s action included an operation of US $ 5.3 million through the Straddles seller within April, Before the premium of US $ 60 million on Tuesday spent on the objective of a 10 -year performance drop to around 4.15%.
More active SFE options
The open interest has increased during last week in two options mainly, Where the positioning has been extended above the 100,000 mark in each Strike. A recent recent flow has been the constant addition to moderate coverage, with the objective of a pair of rates cuts for the middle of this year, through a direct buyer of Call 96.25 options in a long position that has accumulated around 110,000 at the close of Monday. The increase in Call Sof25 options has been due to the recent purchase of the Strike in front of the sale of the Call 97.00 December 2025 options as a differential.
Heat options map
In the SFEFR OPTIONS WITH SEPTEMBER 25, The most busy exercise price remains the 96.00. There has also been a recent increase in activity around the year price of 95,875. The exercise price of 95,625 is still very busy with flows Recent, including decent purchases in the Sofer Sale option with expiration as of September 25, 95,875/95,625/95,375.
CFTC futures positioning
In the positioning of the CFTC until February 18, Coverage funds aggressively covered short positions in futures of notes to 10 years. The total amount of net short coverage throughout the strip of futures by the coverage funds was equivalent to approximately 340,000 futures of notes at 10 yearsthe largest amount of short coverage since November. During the week, asset administrators got a long net duration of approximately 151,000 futures of notes to 10 years, and the greatest net divestment was observed in the futures of notes to 5 years.
