The cost of hedging against a further rally in US Treasuries jumped to its highest level since March, as investors flock to government bonds amid oil price spikes and France’s fiscal turmoil. Yields on the 10-year Treasury dipped below 5% for the first time in a month, with traders paying millions to protect against deeper declines. Market participants now favor call options over puts on longer-dated Treasuries for the first time in seven months, signaling expectations of continued bond strength. A single trade targeting a drop in the 10-year yield to 4.6% within a month grew to roughly 65,000 contracts, valued at about $7 million. The rally is also fueled by short-covering, as CME data revealed a surge in long-bond futures risk, putting pressure on existing short positions during Thursday’s surge.
Key drivers include Middle East conflict fears, AI trade jitters, and escalating French bond stress linked to weekend protest threats. These factors have weakened the bearish case for bonds, pushing investors toward safety. The shift in options pricing reflects a market bracing for further yield drops, while open interest data suggests fresh short positions are increasingly vulnerable.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing