Large Options Trades in U.S. Treasury Market Bet on 10-Year Yields Surpassing 5%

Today, the U.S. Treasury market saw significant options trading, betting that the sell-off of U.S. government bonds will push the 10-year yield above 5%. Rising oil prices may further fuel high inflation, and this options trading indicates that investors are tightening their hedges against bond market risks. The sell-off has brought the 10-year yield close to its peak of just above 5% in 2023, while the 30-year U.S. Treasury yield rose to 5.35% on Thursday, the highest level since 2007. The premium paid for this options trade was approximately $14 million, a substantial amount. Traders noted that a wave of behind-the-scenes hedging activity has emerged, contributing to the selling pressure. If the downward trend continues, investors may further buy put options to protect their portfolios while increasing convexity hedges. If the 10-year U.S. Treasury yield rises to about 5.1%, this trade will reach its breakeven point; if the yield rises to 5.2%, the profit will increase to approximately $15 million. The last time the 10-year yield reached this level was in 2007.

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