After weeks of neutrality, Treasury traders are betting on a surge in Treasurys as they hedge against a possible economic slowdown.

Treasuries have surged over the past week, sending yields sliding. Yields fell to year-to-date lows on Tuesday, with the 10-year Treasury yield falling to 4.28% from a high of 4.57% a week ago as options traders shifted positions as the U.S. economy, which has shown signs of weakness, faces more pressure under Trump's tariffs.

"A risk-off tone has emerged in the market as concerns about the impact of Trump's agenda on the global economy continue to grow," Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said in a note.

U.S. Treasury Secretary Benson said at an event in Washington on Tuesday that the 10-year Treasury yield should "naturally" fall with Trump's policies, fueling bullish bets.

One prominent position that targets a drop in the 10-year Treasury yield to 4.15% or lower emerged Tuesday morning. The position would net about $40 million in profits if yields fall to 4%, according to Bloomberg calculations. If yields retest last September's lows, the position would amass about $280 million in wealth.

Derivatives traders are also targeting yields on shorter-dated notes. Over the past few sessions, long positions in Fed fund futures have been growing, and those positions stand to benefit if the Fed cuts rates as early as its May 7 policy meeting. Open interest, or futures positions for May contracts, has risen more than 50% since last week as traders bet on more easing from the Fed this year.

Fed swaps are currently pricing in about a 32% chance of a rate cut in May, compared with just 8% a week ago. Until this week, narrow ranges in Fed policy outcomes had kept yields in a tight range.

In the spot market, traders are also starting to turn more bullish. A survey of JPMorgan Chase & Co.'s Treasury clients showed net long positions rose to their highest since Jan. 27 in the week ended Feb. 24. The put/call bias in long-term Treasury futures continued to rise, with calls more favored. One standout trade in the options market on Monday included a short-term hedge on the 10-year Treasury, targeting a yield cut to around 4.2% by March 7 expiration.

CFTC positions as of Feb. 18 show hedge funds actively covering short positions in 10-year Treasury futures. The total net short covering by hedge funds across futures equaled about 340,000 10-year Treasury futures, the largest short covering since November.

The engine of the US stock market stalls

On the other hand, as investors' concerns about the economy and inflationary threats grow, the bubble corner of the US stock market is threatened, and Wall Street bulls can find little comfort in an area that has been unshakable for two years - super-large market value technology stocks.

Since setting a record closing last week, the US stock market has been shaky in the past four trading days, and investors are increasingly worried that Trump's tariff threats will weaken the economy and stimulate inflation. On Tuesday, the stock prices of the seven giants that have driven the US stock market to surge 54% in two years collectively pulled back, highlighting the dangerous moment of the US stock market. The "Bloomberg Technology Seven Index" fell 2.3% on Tuesday, bringing its record drop since December 17 last year to more than 10%. During this period, the market value of the seven companies has decreased by a total of $1.5 trillion.

At the same time, data on Tuesday showed that recent economic data fell short of expectations, and the US consumer confidence index recorded its biggest drop since 2021 last month.

"There are still concerns about growth and inflation," said Alec Young, chief investment strategist at Mapsignals. "You don't usually worry about both at the same time, but it's a factor right now. And tariffs are fanning the flames on both."

While the recent plunge doesn't mean further pain is imminent, the gloom in U.S. stock sentiment marks a sharp shift from when Trump was elected last November.

'Big Seven' indexes enter correction zone

Signs of stress in U.S. stocks have intensified over the past four trading days. The Cboe Volatility Index surged above 20, and the tech-heavy Nasdaq 100 fell 5% during that period. The "Bloomberg Technology Seven" index is on track for its worst month relative to the S&P 500 since the end of 2022. Weakness in the S&P 500's largest sector pushed the index below its 100-day average for the first time since August.

The pain was even worse in the speculative sector of the market. ETFs tracking momentum factors fell 6% in five days, Palantir Technologies Inc.'s losses extended to 30%, and stocks related to Bitcoin plunged along with token prices. Retail flows are weakening, trend followers are expected to be sellers in any case, and options flows are also unfavorable.

Of course, the equal-weighted nature of the Bloomberg Tech 7 Index means that a decline in Tesla will hurt overall performance. Tesla's valuation is currently below $1 trillion. Tesla's shares have been dragged down by a series of poor sales reports and increased competition from rivals such as BYD Co.

Tesla leads the decline

Nvidia's (NVDA) earnings report is due on Wednesday, and big tech investors are increasingly uneasy about high valuations and uncertainty about massive spending on artificial intelligence. Nvidia has led AI trading in the past two years, and other U.S. giants have benefited from the trend.

"People are taking profits before Nvidia's earnings report," said Michael Matousek, chief trader at US Global Investors.

Only Meta Platforms has withstood the recent turmoil due to speculation that its open source version of artificial intelligence will be easier to generate profit growth. Meanwhile, Apple and Tesla are both facing trade war concerns.

The artificial intelligence trade that has made fortunes for investors in the Big Seven tech stocks may struggle to reach new highs if Nvidia's results disappoint, Matusek said. "We need to see more ROI so the train keeps moving," he said. "You need to keep shoveling coal into the furnace, but if it stops running, people lose interest."

This doesn't mean the AI ​​trade will collapse, but things will change and slow down before we see more upside.