Options traders are piling into bets the 10-year Treasury yield will jump to 5 per cent — a level last seen in 2023 — within the next five weeks.
The latest wager will pay as much as $10 million, almost 10 times the premium paid, if the yield climbs around half a percentage point before the options expire. A similar wager, but expiring in a week, was placed before Wednesday’s data showed U.S. inflation ran hot in January.
Inflation metrics are knocking on multi-year highs as traders and investors adjust for the knock-on effect on prices from President Donald Trump’s plan to impose import tariffs. The 10-year breakeven rate, which reflects traders’ expectation for average inflation over the period, is close to a two-year high at around 2.5 per cent.
Friday’s trade entails the purchase of options tied to the 10-year Treasury future in lots of 10,000, buying 107 puts and selling an equal number of 106 puts. While the size of this week’s trades pales in comparison with a bet placed last week for more than 100,000 contracts, the yield target is significantly higher.
A similar wager, but expiring in a week, was placed before Wednesday’s data showed US inflation ran hot in January. While the size of the trade pales in comparison with a bet placed last week for more than 100,000 contracts, the yield target is significantly higher.
The US 10-year yield was steady at 4.52 per cent at 5:35 a.m. ET but remained higher on the week. If sustained, that would bring to an end a a four-week streak of declines.
Trading in many of these options in the U.S. is anonymous, making it difficult to identify the firms or individuals involved.
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