| CHICAGO, March 13
CHICAGO, March 13 Investors flocked to put
options on an exchange-traded fund used as a U.S. Treasury bond
market surrogate on Thursday, in the belief that longer term
U.S. yields are poised to rise, options traders said.
A report by credit rating agency Standard and Poor's that
the worst is over in subprime-related write-downs for large
financial institutions helped lift U.S. stock prices and
undermined the need for U.S. Treasuries as a safety play.
U.S. Treasury bond prices also slipped on hopes a new
federal housing initiative would eventually remedy the crisis
of confidence in mortgage-backed bond markets.
Shares in the iShares Lehman 20+ Year Treasury Index
TLT.A, or TLT, which tracks the long end of the Treasury
yield curve, fell 90 cents to a session low of $93.40.
In the options market, TLT put volume far outpaced call
volume by a factor of 8.32. In all, roughly 29,000 puts and
3,431 calls changed changed hands in the TLT, two times the
normal volume, according to option analytics firm Trade Alert.
"Investors are buying puts in the TLT on the view that the
yields on Treasuries are set to rise and bond prices will move
lower," said Peter Dunay, chief investment strategist at
broker-dealer Meridian Equity Partners in New York. "So in
effect, investors are betting that the TLT shares will fall
Investors often use equity puts, allowing them to sell the
security at a predetermined price within a specified time
period, to guard against downside market risk.
In this case, when the fund loses value, bonds are falling
and yields are rising. So betting against the TLT by purchasing
puts would be a way to bet that long-term rates will rise, said
independent options trader Frederic Ruffy.
There has been another bout of flight to quality buying
this week in the financial markets as the global liquidity and
credit crisis that began last summer rumbled on.
"The flight to safety motivated some bond buying," Ruffy
said. It also spurred an increase in risk perception reflected
by the elevated Chicago Board Options Volatility Index .VIX
or VIX, and a rally in gold prices to a record $1,000 an
"However, when Standard and Poor's suggested today that
there might be a light at the end of the tunnel for the banks
and brokers, bonds lost some of that flight to safety bid,"
Also, the U.S. consumer price index data, which has
important implications for inflation and Federal Reserve
policy, is due out on Friday.
"Some bond traders probably banked some profits and move to
the sidelines ahead of the news," Ruffy said.
The exchange traded fund typically attracts nontraditional
bond investors such as smaller hedge funds and individuals.
(Editing by Leslie Adler)