The 10-year U.S. Treasury yield, which had just hit its highest level since 2002 on Monday, finally caught its breath on Tuesday. It fell about 4 basis points to around 5.27%, ending a two-day streak of gains. The 30-year yield also slipped about 3 basis points to around 5.62%, while the 2-year yield fell about 2 basis points to 4.8%.
The pullback was mainly driven by two factors. First, oil prices softened: Brent crude fell about 2% to around $98 a barrel, while U.S. crude slipped to around $87, cooling inflation expectations. Second, U.S. Treasury Secretary Bessent said publicly that the government’s debt burden was manageable, soothing market concerns about the fiscal outlook to some extent. Yields on European government bonds also fell, bringing a temporary pause to the global bond selloff.
But don’t celebrate too soon. Tuesday’s $58 billion 3-year Treasury auction drew a yield of 4.932%, the highest for an auction of the same maturity since May 2006. This shows that investors are still demanding higher returns before lending to the U.S. government, and the “foundation” for long-term interest rates has risen significantly. From its low of around 3.96% at the start of the year, the 10-year yield has climbed by more than 1.1 percentage points this year.
Market concerns have not gone away: on one hand, geopolitical conflicts are driving up energy prices and inflationary pressures; on the other, strong U.S. economic data suggest the Federal Reserve may need to keep policy tight for longer or even raise rates further.
My take: The pullback in yields was a key reason stocks hit a record high on Tuesday, but this looks more like a “technical breather” than a trend reversal. Early Thursday morning Beijing time, the Fed will release the minutes of its September meeting. Officials’ language on inflation and rate hikes will directly affect the bond market’s next move. For stocks and crypto assets, long-term rates remain a sword hanging over their heads.
The content above is for reference only and does not constitute investment advice.