US 10-Year Yield Hits New Peak... Market Expects "More Gains" Despite Bessent's Calming Efforts

10-Year Yield Breaks Above 4.79%
30-Year Yield Nears 19-Year High
Wall Street Bets on 5.7%
Bessent: "It's Not a Serious Situation" But Market Remains Unsettled

Despite U.S. Treasury Secretary Scott Bessent's efforts to stabilize the bond market, the yield on the U.S. 10-year Treasury note has once again reached a new high since January 2025. The persistent rise in long-term yields is being fueled by multiple factors: the surge in global oil prices following the Iran war, expectations for additional rate hikes by the Federal Reserve (Fed), the enormous U.S. fiscal deficit, and a boom in corporate bond issuance driven by investments in artificial intelligence (AI). These factors have combined to strengthen expectations that upward pressure on long-term yields is unlikely to subside easily.

On September 1 (local time), the yield on the U.S. 10-year Treasury reached 4.798% during intraday trading, marking its highest level since January 14, 2025. Although it later retreated somewhat, it still remained in the upper 4.7% range. Similarly, the 30-year yield—which is closely tied to long-term borrowing costs such as mortgage loans in the U.S.—rose to around 5.25%, nearing the 19-year high reached last month.

The market is also seeing hedging activity in anticipation that Treasury yields will climb even higher. According to Bloomberg, the U.S. Treasury options market recently saw a $6.5 million trade that would profit if the 30-year yield rises to as high as 5.7% by the end of November.

New positions have also been established targeting scenarios where the 10-year yield climbs to 4.85% and the 5-year yield to about 4.6% in the coming weeks. The cost of hedging against falling bond prices is rising as well. In the long-term Treasury futures options market, premiums for put options—which benefit from declining bond prices—are on the rise.

David Roberts, Head of Fixed Income at Nedgroup Investments, commented, "At the moment, it is hard to find a factor that could reverse the situation in the bond market," adding that a long-term resolution of the situation in Iran would be needed to benefit the market.

Bessent: "It's Not a Serious Situation"... Yields Keep Rising Despite Market Calming Efforts

As anxiety in the bond market has grown, Secretary Bessent directly intervened in an attempt to calm the situation. In an interview with Fox Business that day, he stated regarding the recent U.S. Treasury market, "I do not believe we are in any kind of serious situation."

He emphasized that, instead of focusing on volatility over the past month, one should look at long-term performance, pointing out that after U.S. President Donald Trump took office in January last year, the U.S. bond market performed better relative to other major economies.

He also explained that expectations for inflation in the market remain stable, and given the solid growth of the U.S. economy and the country's competitive advantage in AI, the recent bond market turmoil does not accurately reflect underlying economic fundamentals.

On the 19th of last month, Secretary Bessent announced that, to support liquidity in the long-term Treasury market, the Treasury would more than double the size of each buyback operation—from $2 billion per operation to at least $4 billion per operation.

However, the stabilizing effect on the market was short-lived. Immediately after the buyback expansion was announced, long-term Treasury prices rose and yields fell, but the sell-off quickly resumed, and the 30-year yield returned to levels close to those seen before the buyback announcement.

Fourfold Pressure on Long-term Yields: Oil Prices, Rate Hikes, Fiscal Deficits, and More

Despite Secretary Bessent's efforts to calm the market, long-term yields have continued their upward climb because the current selling pressure in the bond market is coming from various sources. The most immediate cause is the renewed surge in global oil prices. With renewed U.S.-Iran military hostilities, Brent crude shot up to the $94 per barrel range that day. Rising oil prices have intensified concerns over increased inflationary pressure in the United States, which in turn has strengthened market expectations of additional Fed rate hikes.

Following comments last week by Fed Chair Kevin Warsh at the Jackson Hole Economic Policy Symposium, hinting that the Fed could opt for further tightening if inflation does not ease sufficiently, expectations for another rate increase have risen quickly. The market now estimates there is about a 70% chance that the Federal Open Market Committee (FOMC) will raise its benchmark rate by 0.25 percentage points at the September 15-16 meeting.

Structural supply pressures in the bond market are also pushing long-term yields higher. With U.S. government debt exceeding $40 trillion, the Treasury continues to issue large amounts of new debt to cover the massive fiscal deficit. At the same time, America's Big Tech firms are issuing sizable amounts of corporate bonds to finance investments in AI data centers and infrastructure, further intensifying the competition for capital within the bond market.

The Financial Times analyzed that the surge in global oil prices, combined with large-scale bond issuance by both governments and corporations, is amplifying the rise in long-term Treasury yields. Some in the market are warning that higher borrowing costs could increase the government's interest burden, which may lead to even more bond issuance to cover the increased costs—a vicious cycle.

Ashok Bhatia, Chief Investment Officer (CIO) of Neuberger Berman, noted, "Instability in the bond market is likely to persist in the long end, rather than the short end that the Fed directly controls."

The rise in long-term yields is not limited to the United States. Japan's 10-year government bond yield hit 3% that day, reaching its highest mark since 1996. The U.K.'s 10-year yield climbed as high as 5.26% during trading, a peak not seen since the 2008 global financial crisis, while the 30-year yield rose to 5.9%, its highest level since the late 1990s. Yields on German and other key European government bonds also surged to their highest levels in around a decade.

This content was produced with the assistance of AI translation services.