As the direction of the Fed's policy this year is still very controversial.Crashps3Interest rate traders are afraid to make big bets. Recent activity in the futures market suggests that investors are covering bearish positions in shorter-term bonds as US two-year bond yields continue to fall from 5 per cent. Traders repriced this year's interest rate cut premium after US jobs data showed weakness in April.

As the position of the Treasury market seems to have become neutral, the rules of the game for putting money into the direction of the Fed's interest rates in 2024 have been greatly opened up. Powell's recent response to the prospect of more rate hikes could further weaken bearish bets.

While every corner of the market is in a wait-and-see state, futures trading activity has surged over the past week amid a mix of short positions and new bets. Most of the activity takes place in short-and medium-term bonds, which are the most sensitive to central bank policy rates.

Yields on shorter-term securities fell more slowly than long-end securities on Tuesday, fuelled by a massive sell-off in futures linked to the guaranteed overnight financing rate (SOFR), which follows a similar spate of activity in the wake of US jobs data last week.

At the same time, bank strategists are starting to rebuild their positions. Barclays suggested shorting Fed fund futures and downplaying the number of interest rate cuts in swaps, while Citigroup stuck to the idea of cutting interest rates several times this year.

The theme of closing short positions also appears in the spot market. Short positions fell 6 percent this week, with net long positions the largest in three weeks, according to JPMorgan Chase's latest client survey.

The following are the latest positioning indicators of the interest rate market:

Short reduction

Short positions fell 6 per cent this week, with net long positions rising to their highest level since April 15, according to JPMorgan Chase's latest survey of Treasury customers.

Block trading is popular

Over the past week, futures traders have turned to block trading, with activity surging in both two-year and five-year Treasury contracts. The most prominent flows of the past week include interest in steepening, with the risk of a high-profile 2s10s block trade equivalent to $1.4 million per basis point. Other flows last week included a 9.Crashps3Bulk buying of 10-year futures at $.45 million / DV01, which appeared to be closed during Monday's trading session.

The asset management agency sings more.

Hedge funds' short positions in Treasury futures expanded in the week to April 30, the day before the Fed's policy decision, according to the Commodity Futures Trading Commission (Commodity Futures Trading Commission).

Bearish positions increased by about 210000 10-year Treasury futures equivalents. This is the third week in a row that short futures have been extended.

On the other hand, asset managers have extended the duration of net bulls by about 126000 10-year Treasury futures equivalents. Asset managers have extended the duration of net bulls by more than 1 million 10-year Treasury futures equivalents in the past three weeks.

SOFR options are the most active

Among the options linked to the guaranteed overnight financing rate, there is a significant increase in the risk of 95.125 exercise, as recent capital flows include substantial purchases of SOFR 95.00x95.125x95.25 call options on September 24th.

Other open contracts included a 94.8125 exercise price due to recent capital inflows, including the purchase of 94.9375 call options on Sept. 24. The largest amount of liquidation is the exercise price of 95.00, and the liquidation of put options decreased significantly on September 24.

SOFR option thermal map

As of Dec. 24, the most crowded SOFR option exercise price is currently 95.50, where you can see a large number of call options outstanding contracts on June 24. The second most crowded is the exercise price of 95.00, where the June 24 call also carries a lot of risk.

The position of 96.00 exercise price is also increasing, among which the position of call option on December 24 is the largest, and the spread of 96.00 exercise 97.00 call option on December 24 is still a hot trade.

The cost of hedging against the slump is reduced.

The option premium, which hedges the fall in long-term Treasury futures, continues to fall, reflecting the neutral spread between put and call options over the past week.