Global bond traders betting against latest Trump threat

London

BOND investors are betting that trade tensions will abate to send global yields rising again.

Investors are buying put options on Treasuries and German bunds, positions that will pay off from a decline in some of the world's safest assets.

The demand for the contracts, particularly among Asia-based traders, is seen coming from those who expect the latest escalation in the US-China trade conflict to be short-lived.

Bond yields steadied on Tuesday on news that China's top trade negotiator Liu He is set to visit the US this week for trade talks.

This followed a slide on Monday after US President Donald Trump said he would increase tariffs on US$200 billion of Chinese imports Friday to 25 per cent from 10 per cent.

"The market is therefore positioned optimistically, expecting China to capitulate and for a US-China trade deal to be struck," said Peter Chatwell, head of European rates strategy at Mizuho International.

"If these trades are a speculative play, then we really need to see a US-China deal and strong US inflation by the end of the week for them to work."

Investors have rolled out an options trade via German bund futures from June into July, effectively targeting 10-year yields rising by around nine basis points over that period. That followed a trade on similar-dated Treasuries targeting yields to rise 15 basis points.

US 10-year yields rose one basis point to 2.48 per cent as of 10.45 am London time, while those on their German peers fell two basis points to minus 0.01 per cent.

Global yields have fallen this year amid fears over trade and the possibility of a recession on the horizon. BLOOMBERG