While the U.S. Treasury market saw a large options trade betting that the 10-year yield would break above 5%

Odaily News: A large options trade appeared in the U.S. Treasury market today, betting that the momentum of selling U.S. government bonds will push the 10-year yield above 5%. Rising oil prices may further fuel already elevated inflation, and the above options trade is the latest sign that investors are stepping up hedging against bond market risk.

The selloff pushed the 10-year yield once again close to its 2023 peak of slightly above 5%. The 30-year U.S. Treasury yield rose to 5.35% on Thursday, the highest level since 2007. The options trade paid a premium of about $14 million, a fairly considerable size in the derivatives market.

Previously, traders said a wave of behind-the-scenes hedging activity had already emerged in the market, adding momentum to the selloff. If the decline continues, investors may further buy bearish options to protect their portfolios from losses, while also potentially increasing so-called convexity hedging. If the 10-year U.S. Treasury yield rises to about 5.1%, the trade will reach its break-even point; if the yield rises to 5.2%, the gain will increase to about $15 million. The last time the 10-year yield reached this level was in 2007.