Market Extra: How financial-market players are thinking about a 5% yield on the 10-year Treasury note soon

by | Oct 4, 2023 | Stock Market

There’s a debate going on in financial markets over if and when the benchmark 10-year Treasury note yield will get to 5%, with bond traders leaning toward such a scenario unfolding in a matter of weeks.Data released by Bloomberg on Tuesday shows that traders bought bearish hedges for new risk in rates options over the past week. Most of that action has been in November and December expiries, which have seen open interest jump in Treasury 10-year put strikes. Those positions are hedging a move higher in yields, including the possibility of a 5% yield by November. Getting to that 5% mark essentially requires more selling by investors of the 10-year government note, at a time when stocks have also lost ground. Dow industrials
have erased their 2023 gains as yields climbed on Tuesday, while the S&P 500
has seen its year-to-date gain shrink to around 12% as of Wednesday afternoon. Despite Wednesday’s re-emergence of buyers for U.S. government debt, analyst Ajay Rajadhyaksha of Barclays
said his firm sees no clear catalyst “to stem the bleeding” from the recent “breathtaking selloff” in longer-term maturities. Meanwhile, FHN Financial macro strategist Will Compernolle said getting to a 5% 10-year yield is an “easy bar to clear.” The benchmark 10-year rate
hasn’t closed above that mark since July 17, 2007, and is currently just 25 basis points below 5%.Read: Stock market likely to correct if 10-year Treasury yield reaches 5%, RBC says The roughly $25 trillion U.S. Treasury market has been caught between two narratives — one based on the need for higher borrowing costs to quell inflation and address a growing government deficit, and the other driven by investors’ growing interest in yields now at their most attractive levels in 16 years. Over the past two weeks, the former case has prevailed, provoking selloffs in the 10-year note and 30-year bond

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