Trades in a popular Treasury fund show investors think rates will keep surging

The vibes have soured in the bond market lately.

After a major sell-off last week, traders are making moves that suggest they think rates will keep rising. That’s evident in options positioning, with purchases of bearish put options for the iShares 20+ Year Treasury Bond ETF, a popular fund that tracks moves in long-dated US Treasurys, outpacing bullish call options.

The increase in put options on the fund indicate that traders believe bond yields will increase as prices fall.

Traders were eager to place bets on the Treasury fund on Monday, trading 1.1 million contracts, more than double the fund’s 30-day average trading volume. 669,809 contracts were bearish puts, compared to the 498,486 bullish calls that were placed, according to data from OptionsCharts.

Traders were also bracing for more volatility in the bond market over the next month. Implied 30-day volatility clocked in at 12.1%, compared to the trailing 30-day volatility level of 8.3%, per the analytics site.

Global bond investors dumped bonds last week on rising fears of hotter inflation. Those concerns have poured cold water on the prospect that the Fed will cut interest rates this year, another factor that dims investor appetite in the bond market.

The benchmark 10-year US Treasury yield rose as high as 4.59% on Monday, its highest level in a year. The yield on the 30-year government bond clocked in at 5.11%, havering around its highest levels since the Great Financial Crisis.

The sharp move up in yields is more than “noise,” Mark Malek, the CIO of Siebert Financial, wrote in a note.

“Global bond markets are warning that inflation risk is no longer just an energy story,” Malek said. “It is a warning shot across every asset class.”

“Talk of interest rate cuts in the US has all but ceased, and markets are increasingly confident that the next move in rates will be up; the main uncertainty is when exactly that will happen,” Enrique Díaz-Alvarez, the chief economist at Ebury, wrote of the bond sell-off in a note.