Traders are aggressively purchasing U.S. Treasury options, betting on a bond rally in the coming weeks that could pull the 10-year yield back to 4%—a level not seen since late November.
Data from CME Group on Monday showed a surge in open interest for a March 10-year Treasury options contract over the past week. The total premium paid for this position is unusually large, around $80 million, while open interest in the options skyrocketed by 300% to 171,153 contracts.
This bullish bet continues despite recent upward pressure on U.S. yields. Earlier this month, the 10-year yield briefly approached 4.20% before fluctuating, settling near 4.16% on Monday. Investors are weighing fresh economic data and parsing Federal Reserve officials' comments for clues on the timing and extent of further rate cuts.
Volatility in the Treasury market has remained subdued, with Bank of America's MOVE index hitting its lowest level in over four years. While few major economic releases are expected before year-end, December’s U.S. jobs report early next month could push Treasuries out of their recent range and bring these options closer to profitability.
The March Treasury options expire on February 20, after the Fed’s January policy meeting, making them a tool for traders to speculate on shifting rate expectations. Monday’s session also saw demand for similar bets targeting a drop in the 10-year yield to around 4.05%, with a single trade involving a $28 million premium.
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