10 Year Treasury Yield Options Bet Draws Attention Amid Inflation Fears
The 10-year Treasury yield is under scrutiny as traders bet on a rise to 5%, driven by inflation fears and U.S. debt concerns. The implications for the stock market could be significant.
The rate has reached higher amid US debt fears and growing inflation concern under Trump.
An options bet that puts the 10-year Treasury yield at 5% in the coming weeks is getting attention, Bloomberg reported on Friday.
If it pays off, it could lead to a multimillion-dollar profit for the trader who saw the jump in yields coming, but it would probably mean pain ahead for the stock market.
According to the outlet, the Friday trade saw the purchase of 10,000 options tied to the 10-year, wagering that the yield on the bond will rise nearly half a percentage point in the next five weeks.
As of Friday morning, the rate was hovering at about 4.468%.
The 5% threshold is a key threshold that, when crossed, has historically disrupted stock rallies.
When yields rise to 5%, it can indicate eroding confidence among traders, often sparked by macroeconomic or policy uncertainty. It also makes ultra-safe government bonds more attractive relative to putting money to work in the stock market, which is riskier.
The 10-year note last breached 5% in October 2023. Lingering concern about Washington's ballooning debt played a large part in pushing investors out of the bond market, a worry that has only grown in the last few years.
Rising debt burdens were credited as a reason bond yields soared in January, reaching their highest level since 2023.
But a more acute reason has come into focus for 2025, as Trump administration policies spur inflation fears.
Yields began rising steadily last September when the Federal Reserve made its first rate cut. The fact that yields rose even as borrowing costs came down was seen as an admission by the bond market that investors were preparing for higher inflation, and thus higher interest rates down the road.
A hotter-than-expected consumer price index report on Wednesday sent the 10-year yield spiking to over 4.6%, though yields have since edged lower.
Friday's options trade wasn't the first big bet on higher yields. Last week, a purchase was made for over 100,000 options contracts targeting a similar yield. It will expire in a week, according to Bloomberg.
