1 hr ago
Treasuries Rally as Oil Retreat Boosts Confidence in Fed
US government bonds became more valuable after oil prices dropped.
When bond prices rise, their yields usually fall.
The Federal Reserve had just raised interest rates by a quarter point.
Fed Chair Kevin Warsh said inflation was still too high.
This made investors believe the Fed would continue fighting inflation.
Lower oil prices also reduced fears that inflation would get worse.
The 10-year Treasury yield fell to 4.95%.
British government bonds also rallied after the Bank of England changed its bond-selling plans.
Some analysts still worry that government bonds could weaken again.
US Treasury yields fell across maturities after the Federal Reserve raised its policy rate by a quarter point.
The 10-year Treasury yield dropped eight basis points to 4.95%, ending an eight-day rise.
West Texas Intermediate crude fell as much as 3.3% to below $100 a barrel before settling at $101.91.
Fed Chair Kevin Warsh emphasized persistent inflation, supporting expectations for additional rate increases.
Analysts remained divided, with some expecting sustained bond weakness because of inflation, issuance, and fiscal concerns.
- Who
- The Federal Reserve, Fed Chair Kevin Warsh, Treasury investors, and oil-market participants were involved.
- What
- US Treasury yields declined as oil prices fell and investors gained confidence in the Federal Reserve’s inflation response.
- Where
- US Treasury and oil markets, with related moves in the United Kingdom, Germany, and broader global bond markets.
- When
- Thursday, following the Federal Reserve’s rate decision on Wednesday; the article is dated 2026.
- Why
- Falling oil prices eased inflation concerns, while the Fed’s rate increase and Warsh’s comments reinforced expectations that inflation would be restrained.
Supportive Bond View
Cautious Bond View
Impact of the Fed decision
Supportive Bond View
The rate increase and Warsh’s inflation-focused comments restored the Federal Reserve’s credibility and supported Treasury prices.
Cautious Bond View
The decision may cast a long shadow because the front end must price further tightening while longer-term bonds face inflation, issuance, and fiscal concerns.
Role of oil prices
Supportive Bond View
The retreat in crude prices reduced inflation fears and helped Treasury yields fall.
Cautious Bond View
Oil has become closely correlated with long-term Treasury yields, so another rebound in crude could renew pressure on bonds.
Future Treasury performance
Supportive Bond View
Lower long-term inflation expectations and the bond rally suggest improving sentiment for investors.
Cautious Bond View
BNP Paribas strategist Guneet Dhingra recommended shorting 30-year Treasuries, arguing investors doubt the Fed will return rates to restrictive levels.
Key facts
- Federal funds target range
- Raised by 25 basis points to 3.75%-4%.
- 10-year Treasury yield
- Fell eight basis points to 4.95%.
- West Texas Intermediate
- Dropped as much as 3.3% below $100 a barrel and settled at $101.91.
- Inflation reading
- The Fed’s preferred gauge stood at 3.7% in July, above its 2% long-run target.
- Additional Fed hikes
- Market pricing reflected expectations for at least one more increase this year and as many as two more in 2027.
- 10-year TIPS auction
- The $19 billion reopening drew a 2.653% yield, about two basis points above pre-auction trading.
- UK 30-year gilt yield
- Fell as much as 13 basis points to 5.73% after the Bank of England scrapped planned long-dated gilt sales.
Quotes
Michael Chang
Citi analyst
“For the bond market, this is likely to cast a long shadow rather than create a short-lived storm. The front end now has to price the possibility of further Fed tightening, while the long end is already wrestling with inflation, heavy issuance and fiscal concerns.”
livemint.com
“The Fed seemed credible in terms of fighting the inflation tail risk — that’s a positive for bond investors. That’s reflected in long-term inflation expectations coming off yesterday and today.”
livemint.com
Sources
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