The long position in U.S. Treasuries is crowded, and the market is holding its breath for the "non-farm payroll test."

Bond traders have rapidly built long positions in U.S. Treasuries in recent weeks, betting that the employment report to be released on Thursday will provide more momentum for the market's upward trend.

The June non-farm payroll report to be released this Thursday will be the next major risk event for long investors in U.S. Treasuries. Long investors have already undergone a small stress test: the JOLTS job openings report released on Tuesday showed a surprising and significant increase in May data, a strong signal from the labor market that triggered a sell-off in the bond market.

Citigroup strategist David Bieber believes that the continued accumulation of long positions in U.S. Treasuries is still ongoing, stating that after a week of accumulation, tactical positions are now "highly extended to one-sided" status.

If the employment data is strong, the current one-sided long positions may face a significant correction—traders may seek to close positions if the labor market conditions do not support the Federal Reserve's expectations for a rate cut as early as next month.

CME open interest data shows that traders have increased positions during the recent bond market rally, with newly established long positions pushing yields lower. In U.S. 10-year Treasury futures contracts, open interest surged significantly during the period when the 10-year yield fell from over 4.4% to a low of 4.185% on Tuesday. Open interest in two-year Treasury futures has risen for ten consecutive trading days.

The bullish momentum in the futures market is also reflected in the options market. On Monday, traders spent $32 million in premiums to purchase call options, betting on further increases in the 10-year Treasury.

JP Morgan's client survey on U.S. Treasuries on Tuesday showed that absolute long positions in bonds have risen to the highest level in two weeks, with net long positions increasing by two percentage points, shifting from neutral to slightly bullish.

In terms of SOFR options, there has been a large new risk exposure at the 96.1875 strike price for the Sep25, Dec25, and Mar26 contracts. In recent weeks, the skew of Treasury options has shifted towards call options, indicating that traders are now willing to pay a premium to hedge against a significant rise in the bond market rather than a decline.

Ed Al-Hussainy, global rates strategist at Columbia Threadneedle Investment, stated that the market is "somewhat bullish on the front end, with the probability of a July rate cut at about 20% following recent comments from Bowman and Waller." He added, "If the employment data exceeds expectations—such as non-farm payrolls close to 200,000—the probability of a July rate cut could drop to zero."