Ahead of CPI, traders are split on 10-year Treasury yield reaching 5.4% this year

With the September inflation report due Wednesday, traders are split on whether the 10-year Treasury yield will reach 5.4% this year. Bets have edged up since the last update but remain close to even. The yield has not yet reached that level in the Treasury’s official daily data: its latest reported reading was 5.24% on Oct. 9. A market estimate based on bets across yield thresholds puts the central expectation for the high at 5.42%, with most bets spanning from under 5.4% to 5.88%.

Expectations swung sharply through October. Traders strongly favored a move to 5.4% at the start of the month, then pulled back before bets rebounded on Oct. 5 and again on Oct. 7. That day, Fed Governor Christopher Waller said further rate hikes might be needed, while rising oil prices added to inflation concerns. CNBC reported that yields later eased as oil prices fell; strong demand at Treasury auctions also helped temper the rise. Bets then retreated again over the weekend and into Tuesday, before a modest recovery.

The 10-year yield reached its highest level since 2002 in early October, with CNBC reporting an intraday high of 5.35% on Oct. 7. But an intraday quote does not establish that the 5.4% outcome has occurred: Treasury’s official daily yield must reach that level. Its reported yield peaked at 5.31% on Oct. 5 and was 5.24% on Oct. 9. The yield closed near 5.19% on Tuesday, according to CNBC.

Wednesday’s September CPI report is the next major test. Hotter inflation, higher energy prices or expectations of further Fed hikes could add pressure to yields. Softer inflation and continued declines in energy prices could weigh on them. Treasury also has a 20-year bond auction tentatively scheduled for Oct. 21, and the Fed meets Oct. 27-28.