US 10-Year Yield Eases as Oil Prices Fall, but Remains Elevated

The yield on the 10-year US Treasury note eased to 4.7% on Monday, tracking lower crude prices, but remained close to the 20-month high of 4.75% reached in the previous session. Persistent concerns over wider fiscal deficits and heavy corporate debt issuance continued to put upward pressure on long-term yields. The US Treasury said it would double liquidity-support buyback operations for longer-dated bonds. CNBC reported that Treasury Secretary Scott Bessent could use nearly $1 trillion from the Treasury’s General Account to help fund the buybacks rather than issue short-term bills, raising concerns over further dollar weakness. On the geopolitical front, the US expanded secondary sanctions targeting entities and countries maintaining business ties with Iran. Bessent warned that a major financial institution could face sanctions this week and suggested China would not be exempt.

The yield on the 10-year US Treasury note was above 4.7% on Monday, remaining close to the 20-month high of 4.75% last session as wider deficit spending and soaring supply of corporate debt continued to lift long-term bond yields. The Treasury stated it would use its general account balance to increase the buyback of long-term securities. This added to efforts to compress yields after the joint intervention on the Japanese yen by selling euros and the request for the Fed to increase the limit on its FIMA facility. Yields on the longer end of the curve had surged since July amid soaring debt issuance from AI companies and higher deficit spending by the federal government. Long-term yields also rose after Fed Chairman Warsh signaled that a rate hike may not be his preferred tool to combat higher inflation, increasing the stakes of his speech in Jackson Hole. Concerns of unanchored inflation were magnified by high energy prices during the US-Iran blockade of tankers in the Persian Gulf.

The yield on the 10-year US Treasury note fell to 4.71% on Monday, retreating after two consecutive sessions of gains as investors turned their attention to Federal Reserve Governor Kevin Warsh's speech at the Jackson Hole symposium. Investors will be parsing Warsh’s remarks on Friday for clues about the Federal Reserve's response to persistent inflation, which remains above the central bank’s 2% target, alongside mounting fiscal concerns, with US federal debt surpassing $40 trillion. Last week, the Treasury Department unveiled plans to at least double buybacks of longer-dated securities in a bid to improve market functioning, though the move provided only temporary relief from the bond selloff. Meanwhile, investors will also closely watch Wednesday’s release of the July personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge for fresh insight into underlying price pressures.