Yellen’s Caveats Are Sufficient to Buoy Treasury Bearish Options

Traders are profiting on short-term wagers that Federal Reserve Chair Janet Yellen’s comments to Congress will push 10-year Treasury yields higher.

The value of CME Group Inc.’s weekly put options that expire in two days traded as high as 20/64 today, up from 11/64 at the end of last week. The options, which grant the right to sell the September Treasury note future contract at a price of 125, gain in value as note prices fall. The September Treasury future is trading at 124 28/32, down from 125 7/32 on July 11. The 10-year note was little changed to yield 2.54 percent.

Yellen reiterated today during her second day of semi-annual testimony on monetary policy that the central bank must press on with record monetary stimulus to combat persistent job-market weakness. The central bank head also added that “if the labor market continues to improve more quickly than anticipated,” then increases in the federal funds rate target likely would occur sooner than currently envisioned.

“These one-week Treasury puts have been appealing because they provide some exposure to downside price moves without risking the house,” said Todd Colvin, senior vice president at RJ O’Brien & Associates LLC in Chicago, in a telephone interview. “The market saw Yellen yesterday as leaving the door open that if things continue to improve, such as with wages, the labor participation rate, then the Fed may be at a place that they can raise rates sooner than later.”

Before it's here, it's on the Bloomberg Terminal.