Traders see a 5.4% U.S. 10-year yield as a toss-up, with higher levels unlikely

Traders are evenly divided over whether the U.S. 10-year Treasury yield will reach 5.4% before 2027, after a late-Sunday jump moved expectations from unlikely to a toss-up. The reason for that move is still not clear. No report found ties it to a specific event.

Across the related bets, traders lean toward the yield topping out below 5.4%. Their central expectation for the highest level it reaches this year is under 5.4%, though their range runs as high as 5.86%. Reaching 5.5% or 5.7% looks unlikely, and 6.0% is a long shot.

The yield itself remains short of the mark. Treasury's official reading was 5.09% on Friday, and the 10-year rose to about 5.14% on Monday while oil prices eased. That leaves it roughly a quarter of a percentage point below 5.4%. The question turns on Treasury's daily par-yield series, not on intraday quotes, which can run higher than the official figure. On Oct. 5, when the yield hit a 24-year high, CNBC reported an intraday level of 5.349% while the official series showed 5.31%. No official close at or above 5.4% had been reported through Monday.

Expectations have swung widely this month. Early in October, traders saw 5.4% as likely, as strong inflation data and higher oil prices, tied to the U.S.-Iran war and risks to Hormuz shipping, pushed yields up. CNBC reported that September consumer prices rose 3.7% from a year earlier, above estimates, and that wholesale prices rose 6.3%. Bets then eased through mid-month and fell sharply on Oct. 15 and 16 as yields retreated from their peak. Sunday's jump recovered part of that drop.

The Federal Reserve's meeting on Oct. 27-28 is the next scheduled catalyst. A Fed rate hike is among the main drivers of longer-term yields, and oil prices and inflation data also matter. Hotter data, higher oil or a Fed signal of more hikes could push yields toward the threshold. Weaker data or cheaper oil could pull them back.