Bond traders are actively preparing for a new round of increases in the usa treasury bond market, expecting yields to continue to fall from the high reached after Donald Trump’s election. The latest survey released by jpmorgan shows that its clients have significantly increased their long positions in usa government bonds to a one-year high, marking a shift from a neutral to a bullish stance. This change follows the rise in usa treasury prices over the past two weeks, which was supported by strong demand shown in treasury bond auctions.

In the futures market, traders are establishing new positions linked to secured overnight financing rates and federal funds rates, reflecting optimistic expectations for a decrease in interest rates. The statement by Federal Reserve governor Christopher Waller, indicating a tendency to support interest rate cuts at the meeting on December 18, further boosted market sentiment, leading to a significant increase in trading volume. The swap market predicts a two-thirds chance that the Federal Reserve will cut rates at that meeting.

Signs of restored market confidence are also reflected in trading activity, as traders are emerging from the shadows of selling caused by inflation concerns and a slowdown in interest rate cuts that may result from Trump's tax cuts and tariff plans. Although some traders had bet on a potential further market decline last week and hedged against the risk of a rebound in 10-year usa treasury yields, current market sentiment has clearly shifted to optimism.

This week, speeches by Federal Reserve Chairman Jerome Powell and the monthly employment report will be the focus of market attention, as these events may impact existing market bets. Below is an overview of the latest positioning indicators in the interest rate market:

jpmorgan Financial Client Survey

In the week ending December 2, the long positions directly held by jpmorgan's clients increased by 6 percentage points, thus breaking away from a neutral position, while short positions remained unchanged. The direct long positions of all clients climbed to the highest level since December 11, while net long positions also reached the highest level since November 4.

The premium for government bond options has returned to neutral.

Over the past week, the cost of hedging against bond market volatility has tended towards equilibrium. Following a surge in demand for put bets at the end of November, the demand for downside protection against the rise in the yield of 10-year usa government bonds has moderated in the past week.

SOFR options trading.

In the most active SOFR (Secured Overnight Financing Rate) options trading, traders expressed their expectations for a market uptick by buying call spreads and call options at high prices. Meanwhile, the SOFR options heat map also showed active trading of call and put options at specific strike prices.

In the past week, the market showed strong interest in SOFR options expiring on December 24, particularly those with a strike price of 95.625. The rising demand for call options at this strike price reflects strong demand for price upside protection. Recent trading dynamics include buying the call spread for SOFR December 24 at 95.625/95.6875, purchasing the call options at high prices for SOFR December 24 at 95.5625/95.625/95.6875, and buying the call spread for SOFR December 24 at 95.625/95.6875.

In the SOFR options market, there are currently 20 open positions for options contracts expiring on December 24, March 25, and June 25, which are the largest in the market. These positions represent the highest trading volume or the highest attention options contracts in the market, which are often used by market participants to hedge risks or speculate.

CFTC Futures Positions

In the week ending November 26, hedge funds significantly reduced their short positions in the usa treasury futures market, with a specific reduction of approximately 417,000 contracts equivalent to 10-year usa treasury futures, marking the largest net short covering since August 27. During the same period, asset management companies massively closed their long positions, with a closing volume of approximately 265,000 contracts equivalent to 10-year usa treasury futures, which is also the largest long liquidation since August 27.

Editor/Danial