Someone has made an unusually large bet that volatility is about to hit the bond market

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Global bond yields have been on the move this year, rising strongly at the start of the year before sliding lower yet again.

And now they’re lifting again, encouraged by a raft of of hawkish rhetoric from leading several banks.

All of a sudden there’s a lot of interest in the bond market, and, more importantly, a wide divergence in views. And, with differing views and increased uncertainty, that mean that volatility could soon follow.

One trader certainly thinks it will, and not with months or years, but weeks, outlaying an unusually large bet that volatility is about to make a comeback.

Here’s a snippet from a story in Bloomberg:

On Tuesday, someone ponied up almost $US10 million to buy out-of-the-money put and call options simultaneously on 10-year Treasury futures, in what’s known as a strangle, according to data compiled by Bloomberg and observations of trading levels.

The position caught the market’s attention because it involved block sizes of about 63,500, according to CME Group. A strangle of that magnitude is rare, and possibly unprecedented, say rates traders familiar with the market.

The success of the wager, which involves an unusually large amount of money for an options strategy of this kind, isn’t tied to the direction of yields. Rather, it depends on the return of the kind of turbulence that hasn’t been seen in months.


Music to the ears for investors, especially for traders.

Chris Weston, chief market strategist at IG Markets, says that given the importance of bond markets on other asset classes, any bout of volatility there could see previously sleepy markets come alive in the period ahead.

“(It) feeds into my view that in 2018 the markets will be alive with the sound of volatility,” says Weston.

Bloomberg has more here.

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