1 day ago
Treasury Yields Retreat as Oil Stabilizes and Bessent Reassures Investors
US government borrowing costs went down a little after reaching their highest levels since 2002.
Oil prices briefly fell as more supplies appeared to be moving through the Strait of Hormuz, though they later recovered that decline.
Treasury Secretary Scott Bessent said economic growth and limits on spending could help slow government borrowing.
Investors are still worried because the US government spends more than it brings in.
Some experts also warned that high energy prices could keep inflation worries alive.
A government bond sale drew strong participation from direct buyers.
The market’s brief pause does not mean investors think the bond selloff is over.
Analysts remain divided about how much the Federal Reserve may raise interest rates next year.
US 10-year Treasury yields fell three basis points to 5.28%, while two-year yields declined about two basis points to 4.8%.
The pullback paused a global bond selloff linked to inflation concerns over the US-Iran war and expectations of more Federal Reserve tightening.
Treasury Secretary Scott Bessent said economic growth and spending restraint would begin to change the path of government borrowing.
A $58 billion three-year note auction cleared at 4.932%, just below the 4.934% yield immediately before the bidding deadline.
Investors remained wary of the US deficit, energy prices and long-term Treasury demand despite the day’s yield declines.
- Who
- US Treasury investors, Treasury Secretary Scott Bessent, and market strategists
- What
- US Treasury yields fell from their highest levels since 2002, pausing a broader bond selloff.
- Where
- US Treasury markets; Bessent spoke at an event in Pennsylvania.
- When
- Yields declined on Tuesday; Bessent spoke on Monday night.
- Why
- Oil prices initially eased and Bessent said growth and spending restraint could improve the borrowing outlook, while concerns about inflation, deficits and future demand persisted.
Reasons for a possible stabilization
Reasons for continued investor caution
Government borrowing outlook
Reasons for a possible stabilization
Bessent said economic growth and spending restraint would begin to bend the path of government borrowing.
Reasons for continued investor caution
Investors and strategists questioned whether the government has a concrete plan to reduce the deficit or ease fiscal strains soon.
Interest-rate expectations
Reasons for a possible stabilization
Bloomberg strategists said recent data leaned dovish and made an October rate hike less likely; HSBC strategists called market pricing for about 80 basis points of hikes next year excessive.
Reasons for continued investor caution
The economy was holding up despite high yields, and strategists said strong data and loose financial conditions made a significant Treasury rally difficult to foresee.
Energy prices and bond yields
Reasons for a possible stabilization
Crude prices initially retreated on signs that more supplies were passing through the Strait of Hormuz, helping yields fall.
Reasons for continued investor caution
Schroders fund manager James Ringer said a meaningful bond rally required declines in both crude and refined-product prices; the initial oil-price decline had since been erased.
Key facts
- 10-year Treasury yield
- 5.28%, down 3 basis points
- 2-year Treasury yield
- 4.8%, down about 2 basis points
- Three-year note auction
- $58 billion; awarded at 4.932%
- Direct bidder share
- 31.7% of the three-year auction, the second-largest share on record
- US deficit
- Macquarie strategist Gareth Berry cited a deficit of 6%
- Market pricing for Fed hikes
- About 80 basis points over the course of next year, which HSBC strategists called excessive
- Bond-market pressures
- Inflation fears tied to the US-Iran war, strong US economic data and concerns about government borrowing
Quotes
Gareth Berry
A strategist at Macquarie.
“To see a meaningful rally across the curve, the number one thing you need to see is energy prices starting to decline. That’s not just crude, that’s got to be the refined products as well.”
livemint.com
“A stated ambition is not a plan.”
livemint.com
Sources
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