Bond traders are positioning for the US Treasuries market to extend its recent advance, showing confidence that yields will continue to pull back from the peaks hit after Donald Trump’s election victory.
JPMorgan Chase & Co.’s weekly survey on Tuesday showed that its clients’ have boosted their long positions in US government debt to the highest in a year, dropping what had been a neutral stance toward the securities. The change follows a rally over the past two weeks that was aided by strong demand at the Treasury’s note auctions.
The sentiment shift was also seen in the futures market, where traders entered into new positions tied to the Secured Overnight Financing Rate and the fed funds rate that will pay off if rates keep coming down. Trading volumes jumped after Federal Reserve Governor Christopher Waller on Monday said he’s inclined to vote for another rate reduction at the Dec. 18 meeting. The swaps market is pricing in a roughly two-thirds chance that the central bank will cut its benchmark by a quarter point at that gathering.
The trading activity signals confidence that the bond market is stabilizing from the selloff triggered by speculation that Trump’s tax-cut and tariff plans would rekindle inflation and slow the Fed’s rate reductions. Through last week, traders were betting the market could take another downward turn, with some hedging the risk that 10-year Treasury yields could push back to 4.75%, roughly half a percentage point above where they were Tuesday.
This week’s risk events could still send those wagers into the money, with Fed Chair Jerome Powell speaking Wednesday and the focus shifting to the monthly jobs report Friday.
Here’s a rundown of the latest positioning indicators across the rates market:
JPMorgan Treasury Client Survey
In the week up to Dec. 2 JPMorgan clients added to outright long positions by 6 percentage points, moving out of neutral with shorts unchanged on the week. The all-client outright longs jumped to the biggest since Dec. 11 with the net long position at highest since Nov. 4.
Treasury Options Premium Back to Neutral
The cost to hedge bond-market moves in either direction has become more balanced over the past week. The demand for downside protection, targeting rising 10-year Treasury yields has eased over the past week after a surge in demand for bearish wagers toward the end of November.
Most Active SOFR Options
Over the past week the most active strike has been the 95.625, where demand for upside via the Dec24 tenor continues to emerge. Recent flows have included the SOFR Dec24 95.625/95.6875 call spread bought. There has also been recent buyers of the SOFR Dec24 95.5625/95.625/95.6875 call fly and SOFR Dec24 95.625/95.6875 call spread.
SOFR Options Heatmap
In SOFR options out to the June 2025, the 95.50 strike is still the most populated. Recent flows around the strike have included a SFRZ4 95.50/95.625 call spread buyer and the SFRZ4 95.5625/95.50/95.4375/95.375 put condor. The 96.00 strike also remains well populated — open interest rose in the Mar25 96.00 strike following buying seen Monday in the SFRH5 95.75/96.00/96.25 call fly. Other recent flows around the strike have included SFRH5 96.00/96.25/96.375 broken call flies bought.
CFTC Futures Positioning
Hedge funds aggressively covered short positions in Treasury futures for the week up to Nov. 26, by an amount of approximately 417,000 10-year note futures equivalents, the largest amount of short covering on net basis seen since Aug. 27. Asset managers unwound long positions over the same period by approximately 265,000 10-year note futures equivalents, the largest amount of long liquidation seen since Aug. 27.
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