Treasury yields climbed Thursday as traders positioned ahead of wholesale inflation data, with the 10-year note touching its highest level since November 2023. At the same time, investors are building hedges against the Cboe Volatility Index as markets enter a historically turbulent stretch of the calendar, with strategists pointing to the U.S. midterm elections, rate risk and Middle East tensions as catalysts.
The 10-year U.S. Treasury note yield rose 1.7 basis points to 4.857% on Thursday, its highest level since November 2023, as investors awaited producer price data due later in the session. The 2-year Treasury yield added 1 basis point to 4.436%, while the 30-year bond yield rose more than 2 basis points to 5.307%.
Inflation data and Fed decision loom
The PPI print is expected to show a 5.4% year-over-year increase for August, according to FactSet consensus estimates, up from a 4.7% increase the prior month. Consumer price data follows Friday, giving markets a clearer read on inflation ahead of next week's Federal Reserve rate decision. The moves come after Treasury Secretary Scott Bessent said the department will buy back $6 billion of longer-dated government bonds.
Elsewhere, West Texas Intermediate crude rose 1.25% to $97.23 a barrel as renewed U.S.-Iran hostilities pushed energy prices higher, fueling inflation concerns. Brent crude, the international benchmark, gained 0.64% to $101.86.
VIX attracts hedges as volatile season nears
Investors are meanwhile seeking more protection against stock swings as September and October — historically among the most volatile months for the VIX — approach. Nomura's Charlie McElligott pointed to the midterms, rate risk and Middle East tensions as what he called a "negative risk trinity", according to CNBC. He noted that VIX three-month call skew sits in the 91st percentile, meaning it is relatively expensive to bet on rising equity volatility.
The MOVE Index, which tracks Treasury-option volatility, has stayed elevated as bond markets weigh shifting expectations on rate cuts and Treasury supply, said Luke Rahbari, CEO of Equity Armor Investments. He noted early signs that Treasury-market stress is beginning to spill into equities. Zachary Griffiths of CreditSights added that both the MOVE and VIX are near their 10-year averages while corporate credit spreads remain historically tight, and volatility may climb further once markets move past the summer slowdown.
Some relief could follow, however. VIX volatility tends to fall around 4% in November as midterm results remove a political overhang, said James Ooi, market strategist at Tiger Brokers.
Trading involves risk.
Risk Disclaimer
