According to reports, despite the 30-year U.S. Treasury yield dropping to its lowest level in six months on Tuesday, bond traders are preparing for further declines in yields. Pricing in the options market indicates that the cost of protection against significant drops in yields across different maturities is rising rapidly. As concerns over a potential second-longest U.S. government shutdown rekindle fears in the credit markets, coupled with escalating U.S.-China trade tensions, traders are flocking to high-quality safe-haven assets, pushing the U.S. bond market higher and driving a comprehensive downward shift in the yield curve. Over the past week, the cost of call options on U.S. Treasuries has risen sharply compared to put options. This skew towards call options is nearing the extreme levels seen when Trump announced global tariff measures in early April last year. Citigroup strategist David Bieber noted in a report on Tuesday: “From a positioning perspective, the direction is very clear — in the ‘buying surge’ trend in the U.S. Treasury market, various government bond assets should be taken long.” Moreover, those traders who previously sold protection without hedging against further declines in yields are now increasing their hedging efforts, which might also trigger more buying in U.S. Treasuries. Recently, a surge in hedge activities has targeted a drop in the 10-year Treasury yield below 4%. In the December-dated 10-year Treasury options, recent capital flows show that as yields fell below the 4% mark last week (hitting a low of 3.93%, the lowest in about six months), traders are adjusting positions to aim for a more significant upward trend. The positioning reflects market expectations that the 10-year yield could fall to between 3.75% and 3.70%, evident from the increase in open interest for call options with December expirations and strike prices at 115.00 and 115.50. At the same time, a survey released by JPMorgan on Tuesday indicated a slight increase in direct short positions and a reduction in long positions in the spot market, creating a market structure that makes the bond market susceptible to rises due to short covering. Below is the latest summary of positioning metrics from the rates market: According to JPMorgan's survey for the week ending October 20, short positions rose by 2 percentage points while long positions decreased correspondingly. The current net long position has fallen to its lowest level since August 25. The most active SOFR options include the guaranteed overnight financing rate (SOFR) options covering the expirations in December 2025, March 2026, and June 2026. Last week, contracts with a strike price of 96.5625 were traded most actively, with a rapid increase in open interest for the December 2025 call options. Recent trades around this strike price include buying the 96.50/96.5625 call spread and the 96.5625/96.75 call spread, aiming to bet on a potential 50 basis point cut by the Fed at the December policy meeting. Additionally, significant growth was observed in open interest for the March 2026 call options with a strike price of 96.75, with recent capital flows including purchases of 96.75/97.00/97.125 2x1x2 call options combination. The SOFR options heat map shows that within the SOFR options covering December 2025, March 2026, and June 2026, the 96.50 strike price remains the most concentrated position, primarily due to a large accumulation of call options expiring in December 2025. Recent capital flows include directly buying SFRZ5 96.50 call options, as well as purchasing the SFRZ5 96.50/96.5625 call spread and the SFRZ5 96.50/96.625 call spread. Moreover, the open interest for the 96.25 call and put options expiring in December 2025 has also increased, with recent capital flows involving establishing new risk positions through the purchase of the 96.375/96.25 1x2 put spread expiring in December 2025.