US Treasury yields hit a 20-year high as traders flood into fixed-income ETF options in record numbers.

As 10-year and 30-year US Treasury yields climbed to their highest in two decades, traders rushed to readjust their portfolios by piling into options tied to fixed-income ETFs at a record pace. Options trading in BlackRock's iShares 20+ Year Treasury Bond ETF (TLT) surged, with the 20-day average of its options volume hitting the highest level in the ETF's history. Open interest, or existing positions held by investors, has more than doubled over the past year and is approaching the record 13.55mn contracts set ahead of last week's monthly expiration. The jump in bond yields has come alongside wider trading ranges, driving up the cost of options used to guard against bigger swings. TLT's implied volatility and put premiums have jumped to their highest since late March as investors pay more to hedge against or bet on rising yields. "We're seeing some of the highest volumes in Treasuries, investment grade and high yield ETFs right now," said Steve Laipply, global co-head of iShares fixed-income ETFs at BlackRock. "Options on these exposures are growing in popularity because they provide exposure that is difficult to replicate efficiently in the underlying bond markets." The surge in options volume shows institutions and even some retail investors are embracing ETF options to navigate the bond sell-off, in addition to their long-standing use of swaps or exchange-traded futures such as those on CME. Over the past week, the jump in options volume also spread to BlackRock's iShares iBoxx Investment Grade Corporate Bond ETF (LQD) and iShares iBoxx High Yield Corporate Bond ETF (HYG). On Moomoo, the digital brokerage owned by Futu Holdings that increasingly markets itself to US retail investors, traders last week bought options that would pay out if TLT fell further. Neil McDonald, chief executive of Moomoo US, said in an email that clients were "signalling an expectation that bond yields will continue to rise". ETFs also offer a way for fund managers authorised to invest only in equities to hedge interest-rate risk, because they can trade bond exposure "wrapped as a stock". An ETF's share price moves with the current value of the securities it holds. "We are definitely seeing investors who traditionally focused more on equities expanding their attention to rates markets," said Alex Kosoglyadov, head of equity derivatives flow sales at Nomura. "Many traditional equity investors who previously only dabbled in equity volatility markets are increasingly looking at these rates products."