On the eve of the “Super Risk Week” highlight, the market was fiercely bearish on US debt

wallstreetcn ·  Jan 31 11:02

Source: Wall Street News

Next, the market will face tests such as the Federal Reserve's decision, the US Treasury's debt issuance plan, and the January Non-Farm Report. There are options betting that the 10-year yield will rise to 4.3% this week.

Risk events are “piling up” this week, and the market is worried about the risk that US bond yields will rise in the future.

According to reports, options market data shows that in the first two trading days of this week, the main capital flow was biased towards bearish US bond options. Options pricing is expected to raise the 10-year US bond yield to 4.45%. Among them, options pricing expects the 10-year US bond yield to rise to 4.3% by the close of Friday.

Overnight, the 10-year US Treasury yield rose above 4.15%. Unclosed futures contracts recently showed a trend of bottoming out. This together stimulated potential bulls in the US bond market to seek bearish hedging.

By the close, the 10-year US Treasury yield was 4.03%, down about 4 basis points during the day.

In the futures market, overnight financing rate (SOFR) futures have always shown a trend of declining pigeon inflation. The possibility of cutting interest rates by 25 basis points in March is expected to be about 35%, but this was reversed after the release of JOLTS job vacancy data in December.

In the spot market, the J.P. Morgan Chase US Treasury customer survey as of January 29 showed that long positions rose and neutral positions declined.

Furthermore, the current positions in the US bond market are as follows:

  • Hedge funds go long on SOFR futures

According to data from the US Commodity Futures Trading Commission (CFTC), hedge funds increased their net long positions in the week ending January 23, while asset management companies increased their net short positions.

The risk per basis point for a net long position with SOFR leverage increased the cost by approximately $3.1 million, while positions at the far end of the curve did not change much.

  • Bulk trading continues to be active

Spot demand for 2-year notes was significantly strong over the past week. Two large-scale 2-year bulk sell-offs on Monday totaled $850,000 per basis point. The unliquidated contracts seem to indicate that this is a shortfall.

  • Long-term bond futures are skewed and protracted to negative values

It shows that the bias in long-term bond futures continues to be negative over the past week. Traders continue to pay premiums to hedge the risk that the yield curve will rise further in the long term, and the current level hedges the cost of the sell-off.

This week, the US bond market will face several tests, including the Federal Reserve's interest rate decision, the US Treasury's debt issuance plan for the new quarter, and the January Non-Farm Report.


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