Good morning, traders.
Markets jumped on the U.S.-China trade truce like it was the all-clear.
But barely a week later, that feel-good rally is unraveling.
China’s threatening legal action over U.S. semiconductor pressure, and long-term bond yields just punched back above 5%.
That move didn’t make as many headlines.
But it should have.
Because this isn’t about semiconductors. Or tariffs. Or diplomatic back-and-forth.
This is about debt.
Big, ugly, can’t-ignore-it-anymore debt.
And a bond market that’s finally starting to treat it like the risk it actually is.
Familiar Panic at the Yield Curve
When the 30-year Treasury yield popped above 5%, that sent a clear signal.
Confidence in America’s long-term fiscal picture is starting to crack.
This isn’t just a Moody’s downgrade headline.
This is the bond market saying, “We’re not buying the soft-landing fantasy anymore.”
Usually, when things get messy, money runs into bonds.
That’s your classic “flight to safety.”
But now?
It’s the opposite.
Investors are dumping long bonds because the returns don’t justify the risks anymore.
Think about that: In the face of geopolitical tension and fiscal instability, they’re selling bonds.
That tells you everything you need to know.
So, What’s the Trade?
Look, we’ve traded through worse.
From the 2011 U.S. credit downgrade to 2018’s bond market meltdown to the inflation spike of 2022, none of this is new.
But each of these episodes shared one thing in common: They created monster setups for tactical option trades.
Here’s how I’d approach this one:
Volatility Is Your Friend
The VIX is still relatively tame, but if yields keep pressing higher, it won’t stay that way.
Implied volatility tends to spike as investors scramble for protection.
That’s where option sellers can capitalize.
Avoid the Long Bond Trade — For Now
TLT and other long-duration bond ETFs are not your friend here.
Catching the bottom in bonds is like trying to catch a falling knife and bleeding the whole way down.
Until we see the 30-year yield sustain below 4.75%, there’s no compelling reason to step in front of this train.
Watch for Repricing in Tech
China’s semiconductor retaliation will spook markets into rethinking tech valuations, especially anything with AI exposure.
But this won’t be permanent.
Use the Debt Narrative as a Catalyst
As Washington plays hot potato with the national credit card, sectors tied to fiscal policy (think defense, infrastructure, and utilities) will rotate in and out of favor.
Keep an eye on sector ETFs like XLU (utilities) and XLI (industrials). The options here can be cleaner than trading individual names when the macro noise gets loud.
We’ve Already Been Here
This isn’t the first “sell America” scare and it won’t be the last.
But just like every other time, it’s going to create opportunities for traders who know where to look and don’t get caught reacting emotionally.
We’re in a market where the headlines are loud, but the trades are quiet.
Stay patient.
Wait for setups.
And don’t forget — the best trades usually show up after the panic.
If you want help structuring these types of trades, you know where to find me.
Stay street smart,
— Jeff Zananiri
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*Past performance does not indicate future results.
