According to Zhitong Finance APP, as U.S. President Trump is set to announce details of the reciprocal tariff plan on April 2, options traders are increasing their bets that U.S. Treasury bonds will continue to rise. Various signs indicate that investors are preparing for the impact of tariff policies on the already weak U.S. economy—from large-scale bets on falling Treasury yields in options trading to strong expectations reflected in the interest rate derivatives market for the Federal Reserve to cut rates more than anticipated. The surge in demand for call options—used to bet on rising Treasury prices—is another important signal. Currently, the premium of call options relative to put options has reached its highest level since August 2024. "There is a large number of investors in the market currently more focused on recession risks rather than inflation issues in a no-recession (or at least no slowdown) scenario," said Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie Group. "Under this expectation, it is difficult for bond yields to maintain an upward trend." When investors believe that economic growth will slow and ultimately force the Federal Reserve to ease monetary policy, they often buy U.S. Treasuries. As a traditional safe haven during turbulent times, U.S. government bonds have continued to attract buyers amid recent stock and bond market volatility triggered by tariffs. The 10-year Treasury yield, which moves inversely to bond prices, has fallen about 20 basis points since March 27, closing at 4.17% on Tuesday. Notable recent options trading includes a large position betting that the 10-year yield will drop to 3.6% by mid-May. The spot market also shows bullish sentiment, with JPMorgan's latest client positioning survey indicating that its clients' net long positions have risen to a one-month high. Options activity related to the Secured Overnight Financing Rate (SOFR), which closely tracks the Federal Reserve's policy rate, clearly reflects the market's increasingly dovish expectations for rate cuts. Notable trades on Monday included large-scale dovish hedges for December options, targeting a rate cut of about 100 basis points by the end of the year. The current interest rate swap market is pricing in about 75 basis points of easing expectations, equivalent to three cuts of 25 basis points each. Here is an overview of the latest positioning indicators in the interest rate market: JPMorgan U.S. Treasury Client Survey For the week ending March 31, JPMorgan clients' direct long positions increased by 6 percentage points, with net longs reaching the highest level since March 3. Direct short positions decreased by 2 percentage points, and neutral positions fell by 4 percentage points. U.S. Treasury Options Premium In the past week, the premium for hedging against the risk of rising bond prices has continued to climb, with some maturities' call option premiums reaching their highest levels since August of last year. Recent U.S. Treasury options fund flows reflect hedging activities against declining yields, including positions betting that the 10-year yield will drop to 3.6%, as well as call ladder options with a peak at 4% for the 10-year. Shorting the volatility structure remains the mainstream strategy for U.S. Treasury options, with a $4 million sell transaction of May expiration wide straddle options occurring last week. Most Active SOFR Options In the past week, a large number of open contracts were added at strike prices of 95.625 and 95.75, including short positions established through the SFRM5 95.75/95.625 1x2 put spread and the SFRM5 95.75/95.625 put spread. There was also a significant new risk exposure at the 95.6875 strike price, including buying the SFRZ5 95.875/95.6875 1x2 put spread for downside protection. SOFR Options Heat Map Among SOFR options expiring in December 2025, the 95.625 strike price is the most concentrated, with a huge open interest in put options expiring in June, September, and December 2025. Recently, buyers of the 2025 June 95.75/95.625 put spread have emerged near this strike price. The 2025 December 96.00/95.625 put spread has also seen increased holdings, and the SFRU5 95.875/95.625/95.375 put butterfly options are similarly popular. CFTC Futures Positions According to data from the Commodity Futures Trading Commission (CFTC), for the week ending March 25, hedge funds actively covered short positions in the 2-year variety, with approximately $3.9 million/DV01 of short covering. The overall net short duration of hedge funds decreased by about 82,000 10-year futures equivalent contracts that week. In contrast, asset management companies established long positions in long-term bond futures, with net long positions increasing by approximately $5.2 million/DV01.