There was a large options deal in the US bond market on Thursday, betting that the sell-off in treasury bonds would push the 10-year yield above 5%. Higher oil prices may further stimulate already high inflation. The above options trading is the latest sign that investors are stepping up hedging risks in the bond market. The sell-off drove the 10-year yield once again closer to a peak of slightly above 5% in 2023. The 30-year US Treasury yield rose to 5.35% on Thursday, the highest level since 2007. The options deal paid in royalties of approximately $14 million, which is quite large in the derivatives market. Earlier, traders claimed that the market had already experienced a wave of behind-the-scenes hedging activity, fueling the sell-off. If the decline continues, investors may further buy bearish options to protect their portfolios from losses, while also increasing so-called convex hedging. If the 10-year US Treasury yield rises to about 5.1%, the deal will reach break-even; if the yield rises to 5.2%, earnings will increase to about $15 million. The last time the 10-year yield reached this level was in 2007.

There was a large options deal in the US bond market on Thursday, betting that the sell-off in treasury bonds would push the 10-year yield above 5%. Higher oil prices may further stimulate already high inflation. The above options trading is the latest sign that investors are stepping up hedging risks in the bond market. The sell-off drove the 10-year yield once again closer to a peak of slightly above 5% in 2023. The 30-year US Treasury yield rose to 5.35% on Thursday, the highest level since 2007. The options deal paid in royalties of approximately $14 million, which is quite large in the derivatives market. Earlier, traders claimed that the market had already experienced a wave of behind-the-scenes hedging activity, fueling the sell-off. If the decline continues, investors may further buy bearish options to protect their portfolios from losses, while also increasing so-called convex hedging. If the 10-year US Treasury yield rises to about 5.1%, the deal will reach break-even; if the yield rises to 5.2%, earnings will increase to about $15 million. The last time the 10-year yield reached this level was in 2007.