On Friday, options trading surged in products related to the U.S. bond market, particularly the iShares 20+ Year Treasury Bond ETF (TLT), as Treasury yields reached their highest levels in over a year for both the 10-year and 30-year interest rates.
The trading volume for TLT exceeded three times the average daily volume for the past month, with a significant inclination towards put contracts, which are bets that the price of the ETF will decrease as yields rise. Out of 1.4 million contracts traded, nearly 380,000 were puts bought at the ask price or higher, compared to fewer than 240,000 calls.
This indicates a strong expectation of rising yields, as bond prices move inversely to interest rates. Notably, one trader made a substantial bet of $2 million by purchasing 15,000 June 75-strike puts, anticipating an 11% drop in the fund's value by June 17, which would mark the lowest price for TLT since its inception in 2002.
Another trader took a different approach by executing a straddle, buying 3,000 puts and 3,000 calls at the 84-strike price, set to expire on January 18, 2028, for a total investment of $3 million. This strategy allows for profit if TLT moves significantly in either direction, below $74 or above $94.
These trades reflect heightened volatility in the global bond markets, driven by recent economic indicators such as a rise in the Consumer Price Index (CPI), crude oil prices surpassing $100, and the impending end of Jerome Powell's term as chair of the Federal Reserve