Traders Pay Up as Costs Soar to Hedge Against Treasury Rally
(Bloomberg) -- Traders are having to pay the most since the March 2020 liquidity crisis to hedge against a deeper drop in Treasury yields as the flight-to-quality bid intensified Tuesday.
The cost of insurance has soared this week as yields on 10-year Treasury notes have looked to retest 1.70%, which would be the lowest since Jan. 13, as the war in Ukraine deepens and traders pull back on expectations for Federal Reserve rate-hike bets.
Demand continued to rise Tuesday for option structures hedging potential scenarios where U.S. 10-year yields drop as low as 1.55% by the end of March, about 20 basis points below current levels. This has elevated premium on calls versus puts on 10-year note futures, shown by a soaring 1-month 25-delta call/put skew.Â
©2022 Bloomberg L.P.
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