Investors Hedge Bets on US Economic Slowdown Despite Upbeat Bond Market

• Investors buying options that benefit from sharp US economic slowdown, contrary to upbeat bond market outlook • Increased demand from hedge funds for receiver swaptions that pay off when rates fall, reflecting economic concerns • Soft landing still majority view but hard landing scenario gaining momentum due to aggressive Fed tightening • US volatility elevated on short-dated swaptions, reflecting near-term uncertainty, compared to declining vols in Europe • Harder to assess restrictiveness of Fed policy versus ECB, leading to fear of big shock and higher volatility