HSBC Asset Management reports that US Treasury market moves have appeared unusual, with stronger US economic data alongside lower 10-year yields. It says 10-year yields have fallen by about 0.20% this month and are near the bottom of their 12-month range.
It attributes the shift mainly to stress across risk assets rather than to January’s payrolls data, which suggests the labour market may be stabilising. It notes weakness in US technology trades, declines in crypto, and falls in gold and silver at the same time.
Unusual Treasury Correlations
It adds that Treasuries have recently acted as a shock absorber in mixed portfolios. However, it warns this diversifying effect may not last.
It points to tariffs that keep goods prices elevated, and heavy AI-related capital spending that could add to inflation risks. It also flags fiscal dominance risks linked to debt levels and the volume of Treasury issuance expected this year.
The article states it was created with the help of an artificial intelligence tool and reviewed by an editor.
Looking back at early 2025, we saw a confusing period where Treasuries acted as a haven despite strong economic data. That negative correlation between stocks and bonds provided a temporary shelter for portfolios. Now, in February 2026, that relationship has completely broken down, forcing us to rethink our strategies.
Portfolio Hedging Adjustments
The primary driver is persistent inflation, with last week’s Core PCE print coming in stubbornly high at 2.8%. This has put pressure on the Federal Reserve to maintain a hawkish stance, increasing uncertainty around the path of interest rates. Traders should consider using options on SOFR futures to position for continued rate volatility in the coming months.
At the same time, the equity market, particularly the tech sector, is showing signs of renewed stress. The Nasdaq Volatility Index (VXN) has climbed back above 25, a level we haven’t seen since the correction last autumn. Hedging long equity portfolios with put options on the QQQ or SPY seems prudent for the weeks ahead.
The fiscal situation also remains a major concern, just as it was flagged as a risk back in 2025. Last week’s 10-year Treasury auction was poorly received, with a bid-to-cover ratio of just 2.3, highlighting the market’s difficulty in absorbing the massive supply. This suggests an upward bias for yields, making options on Treasury futures a valuable tool for speculating on price declines.
Given that bonds are no longer a reliable shock absorber, we must assume that risk-off events could see both stocks and bonds sell off together. A potential strategy for the coming weeks is to buy protection against a spike in equity volatility through VIX call options. This can act as a more direct and effective hedge than relying on Treasuries.
