US Treasury yields pushed higher on Monday in North American trading, after a reversal late last week following softer US Retail Sales data. The long end led the move, with the 30-year yield reaching levels last seen in 2007 as markets weighed debt, supply and inflation concerns. Oil prices stayed higher as the Middle East saw limited fresh news, keeping focus on the risk of renewed hostilities.
The US 10-year Treasury yield rose by nearly four basis points to 4.728%, while the 30-year climbed by nearly six basis points to 5.315%; the US 2-year T-note yield added nearly 1.5 basis points to 4.179%. Recent data pointed to slowing consumer spending, while consumer and producer prices recorded two straight months of declines. Attention now turns to the Federal Reserve’s meeting minutes on Wednesday, with money markets pricing a 68% chance the Fed holds rates unchanged at the September 2026 meeting. The US Dollar Index (DXY) was down 0.02% at 99.59, and the report was corrected on August 17 at 22:03 GMT to clarify the move occurred on Monday, not Friday.
Derivative Trading Strategies Amid Soaring Yields
We advise derivative traders to position for continued volatility in the long end of the curve as the 30-year US Treasury yield tests its highest levels since 2007 at 5.315%. With the US national debt now projected to surpass 120% of GDP in the coming years and a heavy slate of government bond auctions ahead, long-term yields are facing intense upward pressure. Traders should consider buying protective puts on long-duration Treasury ETFs like TLT or utilizing bear put spreads to capitalize on further bond price declines.
With the Federal Reserve minutes releasing this Wednesday, we recommend using short-term option strategies to capture sudden swings in interest rate expectations. Currently, money markets show a 68% chance that the Fed will keep rates steady in September, which leaves room for market repricing if the minutes reveal hawkish concerns about sticky inflation. Volatility plays, such as straddles on interest rate futures or short-dated Treasury options, can help exploit any sharp adjustments to this consensus.
Energy and Yield Curve Trades in a Volatile Market
Elevated crude prices, driven by persistent Middle East tensions, threaten to keep inflation sticky and push yields even higher. Historically, sustained energy spikes have derailed bond rallies, much like the inflationary waves of late 2022 when Brent crude averaged over $90 a barrel and forced aggressive rate hikes. To hedge against this energy-driven inflation, we suggest building long call options on energy commodities alongside short positions on bond futures.
As the long end of the yield curve rises faster than the short end, we favor trading the yield curve steepener. This bear steepener environment historically benefits traders who go short on long-term Treasury futures while maintaining neutral or long positions on the short end. Additionally, with the US Dollar Index steady near 99.59, watching for a breakout above the 100 level could provide excellent entry points for long USD call options against major foreign currencies.
