Traders Bet on Further US Treasury Rally as Yields Slide and Shutdown Fuels Flight to Safety

Bond traders are increasingly positioning for a deeper decline in U.S. Treasury yields, even after the 30-year yield fell to its lowest level in six months. The market’s tone has turned decisively bullish as investors brace for prolonged political and economic uncertainty driven by the continuing government shutdown, which is on track to become one of the longest in history. The combination of political paralysis, fragile market sentiment, and speculation about future rate cuts is reinforcing demand for safe-haven assets.

Rising hedging costs are signaling that investors expect yields to fall even further. The price of call options on Treasuries has jumped sharply relative to puts, a clear indicator that traders are paying up to protect against additional declines in yields. The move comes as investors increasingly seek quality assets in response to renewed credit market worries and persistent U.S.–China trade tensions. The rally has spread across the curve, pushing yields on both short- and long-term Treasuries lower.

Some investors are betting that the 10-year yield could fall toward the 3.70% range, while others are positioning for a potential Federal Reserve rate cut before year-end. Market participants say the growing risk of a protracted government shutdown is feeding expectations of weaker economic data and slower fiscal activity, both of which tend to drive yields down. The longer the political standoff continues, the greater the likelihood that policymakers will have to offset its drag on growth with easier monetary conditions.

The bond market is also being influenced by a wave of defensive positioning. Traders who previously sold protection against lower yields are now being forced to buy Treasuries to cover those bets, amplifying the rally. Meanwhile, derivatives activity shows investors concentrating on contracts that would benefit from lower interest rates or an accelerated pace of monetary easing. These dynamics suggest that the market’s bias remains strongly toward lower yields, despite short-term bouts of volatility.

Surveys from major financial institutions show that short positions have edged higher, while long positions have declined modestly. This positioning leaves the market vulnerable to sharp short-covering rallies if yields continue to fall. Analysts note that such squeezes have become more frequent in recent months as liquidity tightens and volatility spikes.

Looking ahead, traders are watching Washington closely. A resolution to the government shutdown could temporarily stabilize yields if it restores confidence in the fiscal outlook. However, if negotiations drag on, markets may interpret the paralysis as a deeper sign of political dysfunction—potentially extending the flight to safety well into the winter months. In that case, demand for Treasuries could remain strong even if the Federal Reserve holds rates steady.

Ultimately, the outlook for yields will depend on how quickly the U.S. government reopens and whether upcoming economic data confirm signs of slowing growth. For now, the bond market is operating under a clear assumption: uncertainty favors safety. And as long as that remains true, traders appear willing to keep buying Treasuries—no matter how low yields go.