Expectations for a Fed Funds rate increase at the November 2nd FOMC meeting aren’t particularity high at only about a 19%. For all intents and purposes, this might as well be zero, especially just 6 days before the presidential election. But the probability of a Dec increase, at 67% are at the highs, which would amount to only the second increase in Fed Funds since June 2006, the other last December.

The yield on the 10 year U.S. Treasury is 1.76% as I write, the highest since early June, and above its 200 day moving average for the first time since early January. The yield is up nearly 25 bps since its lows on Sept 30th:

At least one trader is playing for higher treasury yields over the next six weeks, using the TLT (the iShares 20 year Treasury bond etf) to express this view. When the TLT was just above $133 (just before 10:30am) a trader bought to open 20,000 of the Nov 131 / 126 put spreads for $1.12 or $2.24 million in premium. This put spread breaks-even at $129.88, down 2.5%, and has a max profit potential of up to $3.88 (or $7.76 million in premium) down to $126.

What’s interesting about the choice of strikes is the fact that the etf if sitting on its 200 day moving average, just below technical support:

Taking a slightly longer term view, the uptrend from early 2014 happens to be very near the lower strike of the put spread:

Maybe a 25 basis point increase in Fed Funds in Dec has been priced in given the recent bounce in yields, but I’ll remind you that at this time last year that there was an 88% probability of a rate hike at the Nov 2nd, 2016 FOMC meeting, and a 93% chance of a Dec 14th, 2016 increase:

The 10 year Treasury yield was hovering above 2.2% when the Fed raised rates last Dec. But since then the global rate environment has been turned upside down over the last year, literally with trillions of sovereign debt with a negative yield, we may have to get used to Stranger Things as the global economies struggle with the limits of overly accommodative monetary policy.