Cost of Hedging Against a Bigger Treasuries Rally Jumps to Highest Since March
Options protecting against further gains in US government bonds surged in price as 10-year yields dropped below 5% for the first time in about a month, with investors seeking safety amid rising oil prices and France's deepening fiscal crisis.
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By Principle Post Staff·Published
The U.S. Treasury Department building facade with a statue in front · Source: Ting Shen/Bloomberg
The cost of options protecting against a further rally in US Treasuries jumped to its highest level since March, as investors piled into government bonds following a spike in oil prices and a worsening fiscal crisis in France. Yields on the benchmark 10-year Treasury fell below 5% for the first time in roughly a month, and traders are now paying up heavily to hedge against the possibility that bonds keep rallying from here.
A shift in positioning
One closely watched measure of options pricing shows traders paying a higher premium for call options on longer-dated Treasuries than for put options, for the first time in seven months — a sign that market participants are increasingly bracing for bond prices to rise further rather than fall. That marks a notable shift after months in which hedging demand had leaned more toward protecting against higher yields.
The move reflects a broader flight to safety as investors weigh two separate sources of stress: an oil-price spike tied to geopolitical tensions, and mounting concern over France's fiscal position, which has widened the gap between French and German borrowing costs. With both risks still unresolved, traders appear willing to pay record premiums to make sure they're protected if the rush into Treasuries continues.
