Traders Rush to Cover Options Exposure During Peak Fed Uncertainty

Bloomberg2023-04-05

Investors closed out variety of Fed trades over the past weekJPMorgan Treasury client neutrals elevated as conviction sinksBond traders, lacking conviction about what the Federal Reserve will do next,...

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That’s also putting downward pressure on rate volatility following a surge in the immediate aftermath of the failure of Silicon Valley Bank.The theme has been most evident in options linked to the Secured Overnight Financing Rate, which closely tracks the US central bank’s benchmark, as traders have cashed in on bullish bets that have paid off as bond yields have come down.But it’s clear in the cash market, too: JPMorgan’s closely-watched weekly client survey shows the percentage who are currently “neutral” on Treasuries is among the highest readings of the last two decades.Here’s a rundown of positioning in various corners of the bond market:Cash TreasuriesThe JPMorgan survey shows 76% of clients are neutral on Treasuries as of April 3, among the most elevated readings in data starting in 2004, as banking-sector concerns linger and the impact on monetary policy remains cloudy. The labor market may also be starting to show cracks: Tuesday’s monthly Labor Department report on vacancies showed a drop in openings in February to the lowest level in almost two years. Traders Sit Out | JPMorgan Treasury client neutrals remain elevated as uncertainity lingers  Futures PositioningAsset managers reduced net long positions in Treasury, SOFR and eurodollar futures by approximately 100,000 10-year note futures equivalents, equal to almost $7 million in risk per basis point, in the week through March 28, according to the latest weekly data from the Commodity Futures Trading Commission. Most of the reduction was in 10-year note and ultra-long bond contracts.Treasury, SOFR and Eurodollar Future Positioning | How investors stand overall in terms of 10-year future equivalents  Options SkewIn a continued sign that traders are paying up to hedge against further declines in yields, the options skew on 10-year note futures has remained positive, little changed on the week. That suggests investors continue to favor calls as 10-year yields remain toward the lower end of the 3.28% to 3.64% range that has prevailed since mid-March. US 10-Year Futures Call/Put Skew | TY futures 1-month 25-delta call vs. put spread Open InterestIn options on 10-year Treasuries expiring in June, open interest remains elevated in 112.00 and 114.00 call strikes, suggesting a $60 million call spread wager placed on March 14 remains active.SOFR Heat MapMost of the open positions in SOFR options continue to cluster around the 95.00 strikes in the June, September and December 2023 contracts. Major open positions include a June 95.00/96.00 1x2 call spread, a June 95.75/95.50/95.25/95.00 put condor and 95.00/94.75/94.50 put flies in both September and December tenors.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":18,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2325333652"}