Surging inflation collides with falling Treasury yields and Fed uncertainty
The selling followed a Labor Department report showing US producer prices jumped 1.3% in September, the biggest monthly increase since March 2022. Annual wholesale inflation accelerated to 6.3%, its highest level in nearly four years.
Core producer prices, excluding food and energy, rose 0.7% against expectations of 0.3%, taking the annual rate to 5%. The figures followed Wednesday’s consumer inflation reading of 3.7%, indicating that price pressures were spreading beyond the energy market.
Ricky Ho, chief investment officer of a single-family office, said the core reading was particularly concerning because it suggested businesses were facing broader cost increases that could eventually reach consumers.
Energy prices surged 10.8% in September, raising transportation, manufacturing and distribution expenses. Ho warned that businesses must either absorb those increases through lower profit margins or pass them on to customers, potentially prolonging inflation and forcing the Fed to maintain restrictive monetary policy.
The Kobeissi Letter also highlighted the scale of the inflation surprise, noting that the monthly headline PPI increase more than doubled expectations.
Yet financial markets have responded in a seemingly contradictory way.
The benchmark 10-year US Treasury yield fell to around 5.06% despite the inflation surprise, as investors moved into government bonds amid a deepening technology-stock selloff.
Mohamed El-Erian, chief economic adviser at Allianz, attributed the decline partly to investors seeking safety as previously high-flying technology stocks came under pressure.
He also pointed to growing concerns about the resilience of technology investment, a key driver of US economic growth, along with emerging credit stress and elevated borrowing costs.
The divergence suggests investors are increasingly balancing inflation risks against the possibility that weakness in technology stocks could spill into the broader economy.
That tension has complicated expectations for the Fed’s Oct. 27-28 meeting.
Futures markets briefly priced in nearly a 50% chance of an October rate hike after Wednesday’s consumer inflation report. However, those expectations retreated despite Thursday’s producer-price surprise, with the probability falling below 30%.
Can-Luca Köymen, investment strategist at Swiss-regulated digital-asset bank Sygnum, told CryptoSlate that the latest numbers nevertheless strengthened the case for additional tightening.
He said:
“0.7% core PPI confirms the CPI signal rather than fading it: a 28 October hike moves from a tail to a live risk.”
Bitcoin traders increase downside bets
The growing uncertainty has prompted cryptocurrency options traders to abandon bullish positions and increase protection against further declines.
Nick Forster, the founder of options platform Derive, told CryptoSlate in a note that the implied probability of Bitcoin falling below $80,000 by this Friday’s expiry nearly doubled to 18.4% from 9.5% over the previous 24 hours.
Meanwhile, the probability of Bitcoin reaching $100,000 by Christmas fell to 9.7% from 12.5%. Ethereum’s chances of exceeding $3,000 by Christmas weakened to 14%.
The repositioning accelerated after Wednesday’s consumer inflation report, with Derive recording $129 million in Bitcoin and Ethereum options trading volume in the three hours after the release, up twelvefold from the preceding three hours.
One trader spent $151,000 purchasing a Bitcoin put spread covering 500 $BTC, representing approximately $41 million in underlying exposure.
The position could generate a maximum net profit of $849,000 if Bitcoin falls below $78,000 by Friday morning, according to Forster.
Other participants have been unwinding longer-term bullish positions, including a block sale of 1,293 ETH March 2027 call spreads.
The activity has increased attention on Bitcoin’s $80,000 support level ahead of two major options expirations.
Mauricio Di Bartolomeo, co-founder of Bitcoin lending platform Ledn, said in a note that Friday’s expiry involves approximately $1.3 billion in positions, with substantial put exposure concentrated between $76,000 and $80,000.
However, the larger event arrives Oct. 30, when roughly 140,000 $BTC in options contracts, worth nearly $12 billion, are scheduled to expire. That represents approximately one-third of outstanding Bitcoin options positions on Deribit.
A significant concentration of around 25,000 $BTC in call options sits at the $95,000 strike, potentially creating hedging-related demand if Bitcoin recovers toward those levels.
Di Bartolomeo said:
“Whoever is short those calls has to buy as price moves toward them.”
The month-end options book also carries a maximum-pain level near $78,000, placing a substantial concentration of derivatives positioning below Bitcoin’s current price.
The focus now shifts to Federal Reserve Chair Kevin Warsh, scheduled to speak at the International Monetary Fund’s meetings in Bangkok at 11:30 p.m. Eastern on Thursday.
His remarks will be among the final signals before the Fed enters its pre-meeting communications blackout, arriving just hours before Friday’s Bitcoin options expiry and with traders increasingly positioned for a test of the $80,000 level.
