Time to Buy Protection on Bonds

BY BILL GRIFFO

August 11, 2025

The Setup: TLT ETF Rolling Over – Puts are Cheap!

The bond market has given investors a gift rally — and gifts aren’t meant to be hoarded. Especially when:

Supply pressures are building
Seasonal trends are heading towards the most negative of the year
The risk/reward for long-duration bonds has flipped.

This is a time to sell and consider tactical downside protection.

The calm in TLT volatility means buying PUT protection on Bonds is very cheap and that won’t last forever. When it breaks, being positioned ahead of the crowd could make all the difference.

Supply Factors

A combination of slower economic data and trader positioning has given bonds a short-term lift. But that lift comes just as we get fresh news on Q3 refunding — and it’s not bullish.

The Treasury Department is set to increase issuance of UST bonds, adding more supply into a market that’s already digesting heavy deficits. More bonds chasing the same pool of buyers tends to pressure prices lower and push yields back up.

Seasonal Factors

History doesn’t lie: August through October is one of the weakest seasonal windows for Treasuries.

Tax receipts are already in the rearview mirror, meaning the Treasury leans harder on borrowing.
Global investors tend to lighten up on positions ahead of fiscal year-end in September.
And the Fed — while no longer hiking — is still running quantitative tightening, slowly draining demand from the long end of the curve.

This seasonal soft patch often sees TLT prices dropping sharply into and often through October, catching investors off guard after summer strength.

Volatility at the lows — Opportunity to Buy Cheap PUT Options

Right now, the options market is practically asleep when it comes to long-term bonds. The TLT ETF — which tracks the 20+ year Treasury market — is showing unusually low implied volatility. That means put options are cheap relative to the potential price swings if the bond market turns south.

TLT Volatility means PUT option pricing is very cheap. It’s like the ocean before a storm — quiet, glassy, but with dark clouds on the horizon.

With the macro setup we’re seeing — heavy issuance, poor seasonals, and a potential reversal in yields — owning some puts on TLT into October offers a low risk/high probability strategy.

The Case in Three Points

Fundamentals: Higher supply from the Q3 refunding announcement + ongoing deficits = price pressure.
Seasonality: Historically weak period for Treasuries between September–November.
Options Pricing: Low implied volatility on TLT means inexpensive protection right before a likely storm.

Similar Story for Nasdaq 100 (QQQ)

Technology stocks have led the rally high in the indices. However, as the chart below shows the higher high established on Friday was achieved on less strength than the previous high.

This is a reliable sign that the rally may fail and ignite a short-term correction.

Once again the volatility is at the lows so purchasing protection for your equity exposure by buying PUTs is a sound strategy.

Stock/Bond Relative Seasonal Favor the Bond Sale

The last part of the analysis is looking at the relative seasonal impact of bond performance vs stocks over the months ahead to further improve your probability of success:

Investor Considerations

Reduce Long-term Bond Exposure: Lighten up on 10–30 year UST exposure.
Rotate to Cash or Short-Duration: Preserve flexibility and dry powder.
Buy TLT Puts: Target October expirations to align with seasonal weakness and issuance headwinds. Strike selection should balance affordability with meaningful downside capture.

The upcoming period is a time to remain focused, stay nimble—and consider purchasing cheap downside protection so you can stay ahead of the crowd and thrive on any correction.

Live and Trade With Passion My Friends,

Bill Griffo