HSBC Asset Management says moves in the US Treasury market have looked unusual. Stronger US economic data has come alongside lower 10-year yields. It says 10-year yields have fallen by about 0.20% this month and are now near the bottom of their 12-month range.
It links the move mainly to stress across risk assets, not to January’s payrolls data, which suggests the labour market may be stabilising. It points to weak US tech trades, declines in crypto, and falls in gold and silver happening at the same time.
Unusual Treasury Correlations
It adds that Treasuries have recently worked as a shock absorber in mixed portfolios. However, it warns this diversifying benefit may not last.
It highlights tariffs that keep goods prices high, and heavy AI-related capital spending that could increase inflation risk. It also warns about “fiscal dominance” risks tied to high debt levels and the large amount of Treasury issuance expected this year.
The article says it was created with help from an artificial intelligence tool and reviewed by an editor.
In early 2025, markets were hard to read. Treasuries acted as a safe haven even while economic data stayed strong. That negative link between stocks and bonds gave portfolios temporary protection. Now, in February 2026, that link has broken down. This forces investors to rethink their approach.
Portfolio Hedging Adjustments
The main issue is inflation that is still not easing. Last week’s Core PCE came in at a stubborn 2.8%. This keeps pressure on the Federal Reserve to stay hawkish and makes the path of rates more uncertain. Traders may want to use options on SOFR futures to position for continued rate swings in the months ahead.
Equities, especially tech, are also showing signs of fresh stress. The Nasdaq Volatility Index (VXN) has moved back above 25, a level not seen since last autumn’s correction. For the weeks ahead, it may be sensible to hedge long equity positions with put options on QQQ or SPY.
Fiscal risk is also still a major concern, as it was in 2025. Last week’s 10-year Treasury auction was weak, with a bid-to-cover ratio of only 2.3. This shows the market is struggling to absorb the large amount of supply. That points to an upward bias in yields, which makes options on Treasury futures useful for traders who want to position for price declines.
Because bonds may no longer be a dependable shock absorber, it is safer to assume that risk-off episodes could push both stocks and bonds lower at the same time. One possible approach for the coming weeks is to buy protection against a jump in equity volatility using VIX call options. This can be a more direct hedge than relying on Treasuries.
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