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The 10-year Treasury yield climbed above 5.35% on Wednesday, its highest level since 2002, before pulling back after a strong bond auction. Polymarket puts the chance of reaching 5.4% before year-end at 66%, but the odds fall to roughly 19% for 5.7%. The market expects another move higher. A larger selloff is still priced as a long shot.
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Why Treasury yields could keep climbing
Inflation and the Fed are the first part of the story. Rising oil prices are adding pressure, and the Fed has already raised its benchmark rate to 3.75%–4.00%. Governor Christopher Waller said Thursday that more hikes will likely be needed, even if officials pause in October as the 2026 midterm elections near. A pause would leave the possibility of further tightening very much alive.
Borrowing demand is the other part. Treasury has to keep finding buyers for government debt while companies financing AI infrastructure are also competing for investor money. My view is that this competition could keep upward pressure on long-term yields. Wednesday’s strong auction showed buyers are willing to step in at these levels, though, so the path higher is unlikely to be smooth.
September CPI on October 14 is the next major test. Another hot reading would strengthen the case for higher yields by making it harder to argue inflation is settling down.
What the Treasury Market Needs
There is one detail that matters: these contracts use the Treasury’s official daily 10-year par yield, based on quotes collected around 3:30 p.m. Eastern. An intraday spike alone does not settle the bet.
Wednesday’s official reading was 5.28%, below Monday’s 5.31%. That leaves the following distances to the remaining targets. Source: U.S. Treasury
Trading Treasury Yields
My preferred trade is buying Yes on the 10-year reaching 5.7% before 2027 at about 18.9 cents. It needs the official daily yield to rise 0.42 percentage points from Wednesday’s reading. Each share pays $1 if the threshold is reached by December 31, even if yields fall afterward; otherwise, it expires worthless. Market
The appeal is the combination of persistent inflation, the possibility of more Fed hikes, and heavy borrowing demand. I prefer 5.7% as a speculative way to express that view. Softer inflation or a sustained drop in oil would weaken the case, and the low entry price alone does not make it a bargain.
