US Treasury Yields Retreat as Oil Prices Stabilize

US Treasury yields pulled back from their highest levels since 2002 as oil prices stabilized, offering a brief respite from the global bond market sell-off. The retreat in yields came amid reassurances from US Treasury Secretary Scott Bessent that the government’s debt trajectory can be managed through a combination of economic growth and spending restraints. Speaking at an event in Pennsylvania, Bessent claimed the government would soon “start bending that curve,” though investors remain skeptical.

Yields on 10-year Treasury notes fell by three basis points to 5.27%, while two-year yields dropped by about two basis points to 4.8%. Crude oil prices initially dipped on reports of improved supply through the Strait of Hormuz but later recovered. The US$58 billion auction of three-year notes was awarded at 4.932%, slightly below pre-auction levels, with direct bidders taking 31.7% of the sale, the second-largest share on record.

Concerns about the US fiscal path persist, with Bridgewater Associates founder Ray Dalio warning of a potential debt crisis within three years if spending continues to outpace revenue. Investors also fear reduced demand for Treasuries from China and Japan, the US’s largest foreign creditors. Analysts like Gareth Berry of Macquarie remain unconvinced that Bessent’s promises will translate into meaningful fiscal improvements soon.

Strategists at Bloomberg and HSBC noted that longer-term bonds may underperform, with the gap between five- and 30-year Treasury yields expected to widen. They also described current market pricing for Federal Reserve rate hikes in 2027 as “excessive.” James Ringer of Schroders emphasized that sustained declines in energy prices, including refined products like diesel, are essential for bond market stabilization.