Treasury yields surge after Bessent's beefed-up buyback operation fails to calm market

By Joy Wiltermuth

'We are seeing the price of money go up globally,' says one fixed-income CIO

Treasury Secretary Scott Bessent speaks at the 2026 Republican National Convention on Wednesday. The Trump administration is trying, unsucessfully, to control rising yields.

The Treasury market's painful rout intensified Thursday, as a fresh auction of 30-year U.S. government debt and Treasury Secretary Scott Bessent's first beefed-up buyback operation failed to calm the market.

The tumult comes oil prices jolt higher and inflation data increased the odds of a Federal Reserve interest-rate hike next week. That combination had the benchmark 10-year Treasury yield BX:TMUBMUSD10Y up 12 basis points to 4.96% - its highest level in about three years, and putting it in jeopardy of hitting the 5% threshold.

"Everybody is selling everything," said Tom di Galoma, a managing director at Mischler Financial Group, about the selloff in 2-year BX:TMUBMUSD02Y to 30-year BX:TMUBMUSD30Y Treasurys.

The Treasury Department bought back only about $5.2 billion in long-dated government bonds, di Galoma noted. He said that fed off disappointment a day before, when the Treasury underwhelmed traders with its plans to only buy back up to $6 billion. Market expectations were set on a bigger amount.

Furthermore, a $22 billion auction of 30-year Treasury bonds on Thursday went poorly, di Galoma added. While the auction found buyers at a high yield of 5.308%, yields kept pushing higher thereafter.

Bond yields rose globally as the selloff swept through foreign markets Thursday. "We are seeing the price of money go up globally," said Tim Horan, chief investment officer, fixed income, at Chilton Trust.

Adding to the angst in markets were Brent crude-oil futures (BRN00) rising above $107 on Thursday, feeding into inflation anxiety.

More broadly, higher yields matter because they increase the cost of capital. That's crucial right now because major technology and semiconductor companies at the heart of the artificial-intelligence boom have been driving the stock market's big gains over four years.

The AI build-out heavily hinges on borrowing, while major world economies also must compete for dollars as they issue debt to fund large deficits.

That tension added to the summer surge in U.S. bond yields, which prompted Treasury Secretary Bessent in August to intervene with plans to increase Treasury buybacks of long-dated bonds to keep a lid on rates.

Earlier this week, Bessent dared traders to "bet against me if you want," while also declaring: "I am the house now."

Thursday's reaction "shows the house is the market, not the Treasury," said Horan at Chilton Trust. The Treasury may be "the big kid on the block" and trying to "draw the line in the sand with the buybacks," but the market is "bigger than this line in the sand," he said.

This comes as both U.S. (CL00) (CL.1) and Brent crude futures jumped to their highest levels since mid-May, according to Dow Jones Market Data.

The odds of a Federal Reserve interest-rate hike next week spiked to about 73% on Thursday after the inflation data, up from closer to 61% a day ago, according to the CME FedWatch Tool.

If the Fed doesn't hike rates next week, there's a risk that long-dated Treasury yields could become "unanchored" and more disorderly, said Ed Al-Hussainy, portfolio manager at Columbia Threadneedle.

Al-Hussainy said the Treasury and the Fed likely will be more concerned about the potential for bond-market tumult to unleash financial stability concerns. He noted that hasn't happened yet, but it's something to monitor given Thursday's violent moves, especially in shorter-dated Treasury yields. That was prompted by rising odds of a Fed rate hike and the leg higher in oil prices.

Stocks closed lower for fourth day on Thursday, with the Dow Jones Industrial Average DJIA off 0.6%, the S&P 500 SPX 0.6% lower and the Nasdaq Composite Index COMP down 0.7%, according to FactSet.

-Joy Wiltermuth

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-10-26 1624ET