(Bloomberg) -- Bond investors are piling into trades that would profit from a rally in Treasuries, pricing in a scenario viewed as more likely under a US presidential victory by Kamala Harris while paring back bets seen as favoring a win by Donald Trump.
Since Monday, US options activity has been dominated by short-term bullish wagers, with traders looking to position for a possible Harris win after weekend polls showed the US vice president gaining ground against former President Trump. The shift has also been happening in futures.
Separately, JPMorgan Chase & Co.’s latest client survey showed the largest net long positions in Treasuries in about three months, another sign of shifting sentiment.
The moves mark an adjustment by traders who had built up bearish positions partly in anticipation of a potential Trump win. The thinking was that his proposed agenda of tax cuts and aggressive tariffs would drive yields higher and stoke inflation. But with polls showing the race deadlocked, investors are now preparing for the possibility that the vote goes the other way, and bracing for potential market gyrations.
“The swings in polls and predictions have contributed to the collective sense that the presidential election is the closest in a very long time,” Ian Lyngen, head of US rates strategy at BMO Capital Markets, wrote in a note this week. “It will be a choppy ride between now and the point at which the election is officially called.”
On Monday, as investors recalibrated their positions, bullish call options outnumbered bearish put options by 4-to-1, CME open interest data showed. One standout trade included a $5 million position targeting 10-year yields to drop to about 3.9% by the beginning next week — down from 4.28% as of Tuesday — while flows were also consistent with the exit of bearish wagers targeting higher yields.
Demand for bullish hedges continued Tuesday, with similar structures targeting a 10-year yield under 4%. Meanwhile, in the futures market, Monday saw fresh long wagers, including notable demand for longer-dated maturities.
Even as traders game out an election that may not be decided for days, they continue to track economic signals ahead of Thursday’s policy meeting by the Federal Reserve. On Tuesday, yields on Fed-sensitive US two-year notes rose after a report showed strength in the services sector.
While the Fed is widely expected to cut its benchmark rate by a quarter point this week, economic and political cross-currents are adding to expectations for heightened swings in the near future, with one measure of bond volatility rising to the highest in more than a year on Monday.
Here’s a rundown of the latest positioning indicators across the rates market:
JPMorgan Survey
In the week through Nov. 4, JPMorgan’s poll of clients’ Treasury positions showed outright longs rise and shorts fall, leading to the biggest net long position seen since August 12.
Most Active SOFR Options
Positioning shifts over SOFR strikes across Dec24, Mar25 and Jun25 tenors was relatively muted over the past week. The largest amount of open interest gained was in the 96.375 strike, where flows have included decent buying of the SFRM5 96.375/96.125/95.75 put tree. The second most popular strike was the 95.5625 where recent flows have included the SFRZ4 95.75/95.6875/95.625/95.5625 put condor.
SOFR Options Heatmap
In SOFR options out to the June 2025 tenor the 95.75 strike remains the most populated due to recent demand for put and call condor options in the Dec24 tenor. The 95.50 strike also remains heavily populated with large build- up also in both Dec24 calls and puts into the strike.
CFTC Futures Positioning
Asset managers added to net duration long in the week up to Oct. 29 by approximately 182,000 10-year note futures equivalents, according to Commodity Futures Trading Commission data. On the flip-side hedge funds extended net short position by approximately 86,000 10-year note futures equivalents over the same reporting period. Asset managers largest positioning shift was seen in the 5-year note futures where net long was extended by $8.7 million per basis point in risk.
Bond-Put Premium Drifts Back to Neutral
The premium to hedge a selloff in the long-end of the curve remains elevated relative to shorter-dated tenors, but has moved closer to neutral after retreating from the most expensive this year seen recently in terms of the price of long-bond puts versus calls. The move has reflected elevated demand for call options seen over the first part of this week as traders look take out new positions hedging a bond market rally.
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