Traders extended their short bets against US government bonds, signaling the selloff that has taken long-term yields to near a 24-year high has room to continue.
Some raced to cover bearish positions soon after
But since then, open interest, or the amount of new risk, has been rising in futures tied to longer-dated securities, indicating traders are continuing to brace for prices to decline. Such open interest in the 10-year Treasury note rose in 14 of the last 18 sessions as yields pushed higher — something that's typically associated with stepped up short positions.
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Citigroup Inc. strategist David Bieber said the market's posture toward Treasuries continues to be at "extreme short" levels, showing that an "extended short bias" persists. He said recent activity is being driven by both new shorts and long liquidations in Treasuries.
The trading suggests that Tuesday's session may only be a temporary respite from the downturn that's been hammering the market for months. While yields dipped slightly, those on 10- and 30-year bonds resumed their ascent on Wednesday and were just shy of Monday's highs.
The steady rise in yields has been driven by the renewed inflation shock of the Iran war, concern about worsening government finances around the world, and an AI boom that's pouring fuel on an economy that the Federal Reserve is again trying to restrain. More recently, technical factors like so-called convexity hedging by mortgage-bond investors and the mechanics of futures trades have exacerbated the moves.
Anshul Pradhan, head of US rates research at Barclays Capital, said he expects those technical pressures to ease somewhat since such dynamics "don't go on forever."
But sentiment may continue to be a drag. In a note to clients on Friday, Bank of America Corp.'s strategists said that short positions by so-called Commodity Trading Advisers "remain near maximum levels and are notably larger than they were during 2022," when prices were tumbling as the Fed started raising rates steeply to rein in the post-pandemic inflation wave.
Here's a rundown of positioning indicators across the rates market over the past week:
JPMorgan treasury client survey
In the week to Oct. 5, investors increased both short and long positions by 2 percentage points, leaving the survey to show the least amount of neutrals since Aug. 2023. All-client outright long positions are now up to the most since November 2025.
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SOFR options positioning
Across SOFR Dec26, Mar27 and Jun27 options, activity has been elevated over the past week with a heavy amount of new risk along with position liquidations seen. Notable stand out trends have included considerable position liquidation in the 97.00 strike, largely due to an unwind of Jun27 calls at the level which followed large buying in the SFRM7 96.25/97.00 2x3 call spreads which led to significant open interest drop in the 97.00 strike and gains in the 96.25 strike. For new risk, open interest has risen sharply in 96.125 and 96.00 strike largely due to a 100k SFRH7 96.00/96.125 call spread buyer seen last week, a position which targets Fed holding rates steady over the coming meetings.
The 96.50 strike is now the most populated across Dec26, Mar27 and Jun27 tenors following considerable liquidation of the 97.00 strike seen over the past week. There is a heavy amount of open interest among the top strikes sitting in the Dec26 calls, while a large chunk of positioning also seen in the Dec26 puts at the 95.75 strike.
Treasury options skew
The premium paid to hedge Treasury futures in the long-bond contract last week rose to near the highest this year, as long-end yields continued to propel higher and onto levels last seen back in 2002. The premium has edged away from those extremes in the past couple of session but still heavily favors puts versus calls, indicating traders looking for protection against a continued climb in yields, raising the cost of puts versus calls. Skew in front-end and belly of the curve still favors puts, although trades closer to neutral vs. the long-bond contracts.
