Treasury Hedges Can Deepen Rally as 10-Year Yield Falls Below 4%

A rally in US Treasuries that sent the 10-year yield below 4% Thursday could accelerate due to increased hedging by traders seeking protection against a further drop in yields.

Open interest, or the amount of active positions held by traders, has recently ballooned in 10-year Treasury options hedging a yield move to as low as 3.85%. A sustained move under 4% would trigger more hedging by traders who are caught wrongfooted, setting off more Treasuries buying.

Yields on the 10-year notes fell to as low as 3.97% Thursday, while the two-year yield slid to the lowest since September 2022, as ...