Options Traders Bet on Treasury Yield Jump to 5%
Options traders are making significant bets that the 10-year Treasury yield will surge to 5%, a level last recorded in 2023, within the next five weeks.
The recent wager involves purchasing options tied to the 10-year Treasury future, speculating on a half-percentage point increase before expiration. A similar bet with a shorter expiration term (one week) was placed before inflation data revealed a sharp rise in January.
The 10-year breakeven rate, representing traders' inflation expectations, remains elevated at approximately 2.5%. The trade entails buying 107 puts and selling the same number of 106 puts in lots of 10,000.
While the trade volume this week is smaller than a previous bet involving over 100,000 contracts, the yield target is considerably higher.
The US 10-year yield remains stable at 4.52% at the time of writing, although it has gained over the week. A sustained increase would break a four-week decline trend.
Anonymity in options trading makes it challenging to identify the involved firms or individuals.