Bond investors, unsure about Fed policy outlook, hedge against US rate shock

Bond investors are increasingly hedging against potential sharp rises in long-term US interest rates, with growing demand for swaptions that profit if 10-year swap rates climb to 6% from the current 4.23%. The shift reflects concerns about further Federal Reserve tightening, persistent inflation, and large government borrowing needs, with US rate futures now pricing in a 36% chance of a rate hike at this week's meeting. Analysts at Morgan Stanley and Barclays note institutional investors are buying tail-risk protection rather than betting on aggressive Fed policy.