30-year Treasury yields recently hit 5%, then dipped back to 4.90%, which has eased some pressure in the bond market. This shift comes as long-term yields rise globally. Japan is experiencing new highs, the UK has reached its highest yields since 1998, and France’s yields are at levels not seen since 2009. This pullback aligns with softer US economic data, especially from JOLTS job openings, which helped lower yields. If we see more signs of weakness in the US labor market, those pushing for higher bond yields might take a step back, as weaker data could lead the Federal Reserve to consider cutting rates sooner.

Focus on Upcoming US Jobs Report

All eyes are now on the upcoming US jobs report. If the report is disappointing, it could ease yield pressures for a while. However, risks remain due to ongoing concerns about fiscal health, suggesting discussions around the 5% level might come back into play this year. We are starting to see familiar pressures in the bond market, reminiscent of late 2023, when the 30-year Treasury yield first tested the 5% mark. That moment became a turning point before a temporary decline, but now that the yield sits at 4.65%, traders are closely monitoring that old benchmark. The key takeaway from that time is how quickly attitudes can change when major psychological barriers are tested. This uncertainty creates significant fluctuations, making it crucial for options traders to watch bond market volatility. The MOVE Index, which tracks expected Treasury bond volatility, stands at 115, much higher than its historical average, indicating market anxiety. This suggests that preparing for sharp movements, perhaps through straddles on Treasury futures, could be a smart move in the coming weeks. The Federal Reserve seems limited in its options, adding to the tension. The latest jobs report for August 2025 showed a modest increase of just 150,000 jobs, indicating a slowing labor market that could call for rate cuts. However, recent inflation data shows a stubbornly high CPI of 2.8%, making the Fed cautious about easing policy for fear of reigniting inflation.

Yield Curve and Trader Strategies

This situation is reflected in the yield curve. The deep inversion from most of 2024 has nearly flattened. The focus is now on the possibility of a steepening, where long-term yields increase faster than short-term ones. Derivative traders are positioning themselves using spreads between 2-year and 10-year Treasury note futures, as a steepening might indicate rising concerns about long-term growth and inflation. Given this context, traders are using options on ETFs like TLT, which tracks long-term Treasury bonds, to hedge or speculate on a potential rise in yields. Buying puts on these instruments can protect against surging yields and falling bond prices. Meanwhile, some traders are betting on a reversal with calls, anticipating that upcoming economic data will be weak enough to push the Fed toward cutting rates. Pressure is definitely building, similar to 2023. While the Federal Reserve’s policies are in the spotlight, we must also consider ongoing concerns about fiscal health and the large amounts of government debt being issued. This persistent supply pressure means the risk of yields testing that crucial 5% level remains quite real before the year’s end. Create your live VT Markets account and start trading now.

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