US Treasury yields surge as oil spike, buyback results fuel sell-off - The Business Times

THE US bond market sell-off accelerated on Thursday (Sep 10) as spiking oil prices fanned inflation fears and the US Treasury Department bought fewer bonds than expected during its first expanded buyback operation. 

The drop, which sent two-year yields surging by the most since the market’s April 2025 meltdown, began early in the session, after escalating turmoil in the Middle East drove oil to a four-month high and a gauge of wholesale prices showed inflation pressures are building.

The move was also fuelled by doubts about US Treasury Secretary Scott Bessent’s unusual intervention aimed at stabilising the market and curbing the jump in long-term yields, which is pushing up borrowing costs across the US economy.

Those questions built on Wednesday when he underwhelmed traders with the size of his amped-up buyback operation, and then again on Thursday when his department followed up by purchasing just US$5.19 billion of 10- to 20-year debt, less than the US$6 billion maximum he announced. 

The operation stoked scepticism about the Trump administration’s ability to ease a sell-off that has been building over the last six months. With no end to the Iran war in sight or any plans for taming the US government’s deficit, investors say his moves are likely to have only limited impact. 

“Bessent is bringing a squirt gun to a firefight,” said George Catrambone, head of fixed income at DWS Americas. “It’s not enough to quell the premium investors want to receive to buy US 30-year debt, given current debt, deficit and inflation concerns.”

The rise in yields was lead by shorter-maturity securities that are more sensitive to monetary policy changes by the US Federal Reserve, with traders wagering that the central bank may start raising interest rates as soon as at its Sep 15-16 meeting. 

Two-year Treasury yields jumped 16 basis points to 4.59 per cent, the biggest one-day rise since the market meltdown unleashed by US President Donald Trump’s tariff roll-out in April 2025. Ten-year yields climbed 12 basis points to the cusp of their late 2023 peak, while those on 30-year bonds rose 8 basis points to 5.37 per cent, a fresh 19-year high.

“Crude oil drives inflation, and if it starts getting into the system it’s going to be hard to contain it,” said Tony Farren, managing director in rates sales and trading at Mischler Financial Group. “There’s no reprieve for yields to go lower if inflation remains elevated.”

Brent oil rose over US$107 a barrel as deteriorating conditions in the Middle East stoked concerns over global supplies. Traders have been rattled by an uptick in attacks around the Strait of Hormuz, the critical waterway that has become the focal point of the conflict, and by the lack of any signs that the US and Iran are moving toward de-escalating the conflict. 

The rise in energy costs has driven up bond yields worldwide steadily since Trump started the war in February as the US president’s early confidence in a swift victory has given way to a protracted stalemate. The swelling supply of new debt – due both to government deficits and companies that are investing heavily in artificial intelligence – has also played a role.

Bessent, a former hedge-fund manager, has sought to ease the pressure as it ripples through to Americans’ borrowing costs ahead of the November Congressional elections. 

in August, he surprised the market by announcing that he was boosting the size of the department’s bond buybacks, characterising it as a way of steadying a market that had gotten out of sync with its fundamentals. But yields have only marched higher, in part because of the somewhat limited tools at his disposal. 

On Wednesday, the maximum size he announced for the initial operation fell short of some analysts expectations, given how much the market has moved against him since August.

Then on Thursday the department’s buying fell below that cap even though it received US$10.5 billion of offers. Some Wall Street analysts cautioned against reading too much into that, saying it may have resulted from a decision to reject unfavourable bids from sellers instead. 

“This signals that Treasury was more selective than they usually are in the space,” said Molly Brooks, a strategist at TD Securities. 

But the lack of impact so far may encourage investors to keep testing Bessent’s committment.

The  buyback increase has fanned chatter of a more activist style of US debt management that would break with the US Treasury’s practice of making auctions “regular and predictable.” That could include a decision to dial back the size of longer-term bond sales and rely more heavily on shorter-dated debt to finance the deficit. 

Ben Emons, managing director of fixed income at Highline Asset Management, said some may be looking to see if Bessent will start ratcheting up his operations.

“Bessent is keeping the market guessing,” he said. “The market is pushing Bessent to show his full hand by pushing yields higher.” BLOOMBERG

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