Core Viewpoint - Strong employment data has led to a significant shift in market expectations, resulting in a large-scale unwinding of long positions in U.S. Treasury futures, which in turn has driven yields higher [1][2]. Group 1: Market Reactions - Following the release of robust non-farm payroll data, traders sold approximately $7 billion in 10-year Treasuries, leading to a sharp decline in open positions [1][2]. - The strong employment figures have caused market participants to reduce their expectations for a rate cut in July to zero, prompting a sell-off in bonds [1][2]. Group 2: Auction Pressure - Upcoming auctions of $39 billion in 10-year Treasuries and $22 billion in 30-year Treasuries are expected to further pressure long positions, especially if demand appears weak [1][3]. - A recent auction of $58 billion in 3-year Treasuries showed solid results, providing some support for subsequent auctions [3]. Group 3: Positioning and Sentiment - Asset managers aggressively increased their long positions in Treasury futures before the employment report, with net long positions in 5-year and 10-year contracts reaching record highs [3]. - Following the employment data, traders are seeking both upside and downside protection, indicating increased uncertainty regarding interest rate prospects [3].

Group 1 - Recent reduction in large long positions on U.S. Treasuries by futures traders following unexpectedly strong non-farm payroll data, leading to upward pressure on U.S. Treasury yields [1] - The 10-year Treasury yield closed at 4.410%, marking five consecutive days of increases [1] - Significant liquidation of long positions in futures contracts linked to 5-year and 10-year Treasuries, with approximately $70 billion worth of 10-year Treasuries effectively sold [1] Group 2 - Asset management firms have significantly increased their long positions in 5-year and 10-year Treasury futures, reaching record highs [2] - Upcoming auctions of $39 billion in 10-year Treasuries and $22 billion in 30-year Treasuries may exacerbate passive deleveraging pressure if demand is weak [2] - The current interest rate market is characterized by uncertainty and diverging views, with institutions engaging in long-short hedging strategies [2] Group 3 - Increased focus on put options for September and December reflects growing concerns about maintaining high interest rates [3] - The skew in Treasury options has shifted towards bearish, with traders paying premiums to hedge against rising interest rate risks [3] - Asset management firms significantly increased long positions in 10-year Treasury futures before the non-farm data release, indicating a rush to position ahead of a potential shift in market sentiment [3]