RESOLVING THE LEDGER
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Bond yields jumped Thursday, erasing the declines stemming from the Treasury Department’s unusual intervention in the debt market a day earlier. The 10-year Treasury bond yield rose as high as 4.71%, its highest level since Tuesday. The 30-year yield spiked to as high as 5.267%, rising just above the level yields were at when the Treasury Department took action Wednesday. Yields declined somewhat over the course of the morning but spiked back up after Treasury Secretary Scott Bessent appeared on CNBC and teased even more bond repurchases. “I would note that it could be more than the $4 billion” Treasury originally announced, he said. “Again, we have a big tool kit” to lower rates. “Part of it is signaling,” Bessent said. As yields rose following Bessent’s interview, stocks fell. The S&P 500 dropped 0.5% and the Nasdaq composite fell nearly 1%. The Dow was down 465 points. Meanwhile, oil prices accelerated again. U.S. crude oil briefly touched $89 per barrel, and international oil benchmark Brent hovered under $95. The move higher in energy prices came after President Donald Trump threatened “economic warfare” on Iran. Gas prices also rose: The national average jumped another 2 cents from Wednesday to $4.10 per gallon. Bessent’s interview did not help to contain oil prices. “This Iran conflict, we will get on the other side of this,” he said, but “we don’t know when.” Bessent announced he would hold a news conference Monday “to talk about exactly what we’re going to do” to increase economic pressure on Iran in the hopes of persuading the country to fully reopen the Strait of Hormuz. “This is going to be the greatest coordinated economic isolation in the history of the world,” he said. Asked about the latest oil price hikes Thursday, Bessent conceded, “I’m not sure why oil has popped up.” He also claimed to have “asymmetric information” that he said was better than what investors and traders have. This, he said, was the reason his assessment of the Iran situation was so different from the prevailing market view. “We are announcing — probably at the end of this week, beginning of next week — an increased focus on fiscal consolidation,” Bessent said on CNBC. He did not provide further details except to say that the White House budget office director, Russell Vought, “knows more about the intricacies of the budget” than anyone else. Asked if the government’s budget deficit has peaked, Bessent responded, “I think [it’s] a very good chance we have.” The Trump administration would soon be “laser-focused” on the issue, he said. The government’s outstanding debt has risen by more than $3.8 trillion since Trump began his second term in January 2025. The Treasury Department’s surprise announcement Wednesday effectively meant that it would be a bigger buyer of longer-term bonds. Bonds rallied and yields dropped on the news, but the impact was short-lived. ING analysts said the move was “like rearranging deckchairs on the Titanic,” given the country’s growing debt. On Wednesday afternoon, the Treasury Department also revealed that outstanding national debt had topped $40 trillion for the first time. Interest payments on the national debt are on track to surpass Medicare as the government’s single greatest line-item expense. “Absent real fiscal consolidation, we fear the markets will view this action as lacking credibility, meaning this could contribute to higher term premium and yields over time should Treasury become more opportunistic in its approach to debt management and move further away from its ‘regular and predictable’ tenet,” JPMorgan Chase’s global rates team wrote in a note late Wednesday. The timing of the announcement was also “highly unusual” because it came just two weeks after Treasury had released its funding plan. “We can find nothing in market functioning that would force” an announcement like this, they wrote. Ed Yardeni, president of Yardeni Research, said Wednesday he saw the move by Bessent as a sign “that he will do whatever it takes to keep a lid on bond yields.” Bessent has been intensely focused on bond yields and the knock-on effect they have for consumers ever since he took the reins at the Treasury Department. Consumer borrowing rates move in lockstep with the yield on the 10-year Treasury note. Asked Wednesday afternoon whether Americans should be concerned about the bond market, Trump told reporters, “No, I don’t think so.” The Treasury Department did not respond to a request for comment Thursday morning. Experts warned that the Treasury Department’s move could have other consequences. “Increased Treasury activism — if sustained — could also make the dollar less attractive,” analysts at Evercore ISI wrote. The dollar index, which measures the dollar’s strength against a basket of foreign currencies such as the pound, euro and yen, has fallen nearly 1% since Wednesday morning. Evercore’s analysts also concurred that “the impact is likely to be short-lived unless fundamentals change.” The average 30-year fixed mortgage rate posted a small drop Wednesday, according to Mortgage News Daily data, but that decline was reversed Thursday afternoon.
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