U.S. Treasury yields peak? Some on Wall Street have started to bet

After a severe sell-off in U.S. Treasuries, some bond traders are beginning to bet that yields will peak. Since early December, the bond market has continued to decline due to signs of economic resilience and expectations that the Trump agenda may stimulate faster growth, with the 10-year yield rising from around 4.15%. Strong employment data released last Friday shattered expectations for further rate cuts by the Federal Reserve, pushing the 10-year U.S. Treasury yield to a 14-month high. As of the time of writing, the 10-year U.S. Treasury yield is 4.791%. Meanwhile, some traders are increasing options bets, expecting yields to retreat from their current highs. One large trade cost over $40 million in premiums, betting that the 10-year yield will drop from the current level of about 4.8% to 4.6% by February 21. As of the week ending January 13, direct long positions of JPMorgan clients increased by one percentage point, reaching the highest level since December 2023, while direct short positions decreased by two percentage points. Net long positions are currently at their highest level since November 4. According to CFTC data as of January 7, hedge funds have significantly covered short positions across the futures market, with a risk amount equivalent to about 263,000 10-year Treasury futures, marking the largest short covering since the end of November. Media analysis points out that the uncertainty surrounding Trump’s policies is one of the key reasons some traders are bearish on U.S. Treasury yields. Reports have previously indicated that the Trump administration may gradually implement tariffs, suggesting that inflationary impacts could weaken, briefly boosting the U.S. Treasury market. The latest U.S. CPI data set to be released on Wednesday will be the next key inflection point for the market, with expectations that the data will show U.S. inflation remains elevated