Risk events are "piling up" this week, and the market is worried about the risk of future upward movement in US Treasury yields.
According to reports, data from the options market showed that in the first two trading days of the week, the main flow of funds was biased towards bearish Treasury options, and option pricing expected the 10-year Treasury yield to rise to 445%, of whichOptions pricing predicts that the 10-year Treasury yield will rise to 4 by Friday**3%
Overnight, the yield on the 10-year Treasury note briefly rose above 415%, *open interest has shown a trend in recent days, which together has spurred potential bulls in the U.S. Treasury market to start looking for bearish hedges.
As of **, the yield on the 10-year Treasury note was at 403%, down about 4 basis points during the day.
*In the market, the overnight funding rate (SOFR) has been showing a trend of reducing hedging, with an estimated 35% chance of a 25bp rate cut in March, but reversing after the release of the December Jolts job openings data.
In the spot market, JPMorgan Chase & Co.'s U.S. Treasury client survey as of January 29 showed:The bulls are neutral and decreasing
In addition, the current position in the U.S. Treasury market is as follows:
Hedge long SOFR
According to the U.S. Commodity Exchange Commission (CFTC), hedges** increased their net long positions in the week ended Jan. 23, but asset managers increased their net short positions.
The risk per basis point for a net long position in SOFR leveraged extends the cost by about $3.1 million, while the position at the far end of the curve is little changed.
Block trading continues to be buoyant
Spot demand for 2-year notes has been significantly stronger over the past week. Monday's two massive 2-year sell-offs, totaling $850,000 per basis point of risk, seemed to indicate that this was short covering.
Long-term bonds** skew and extend negative
Showing that the skew in long-term bonds** continues to be negative over the past week, traders continue to pay premiums to hedge the risk of further higher on the long end of the yield curve, and the cost of hedging sell-off at current levels has risen.
Next, the U.S. bond market will face tests such as the Federal Reserve's interest rate decision, the U.S. Treasury's bond issuance plan for the new quarter, and the January non-farm payrolls report.
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