Investors are running increasingly weighty bets that long-term US government bond prices are about to fall, anticipating that a Democratic win at next month’s US election and progress against Covid-19 could dent the haven assets.
So-called “curve steepener” bets, which profit if long-term yields rise faster than short-term yields, have reached the highest level in a decade, according to John Normand, strategist at JPMorgan Chase. Yields rise as prices fall.
Some hedge funds and other investors have taken short positions using futures contracts tied to 10-year and 30-year Treasuries. Others have bought put options to bet against exchange traded funds that track the price of the bonds, according to market maker Susquehanna. Open interest in such derivatives, a measure of the number of contracts investors are holding, is near its high for the year, Bloomberg data show.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said he was among those who felt it was time to “go against the rates market” by betting on a rise in 30-year Treasury yields.