Oil prices climb to late-May highs, while wholesale inflation data send benchmark 10-year yield closer to key 5% level
Treasury Secretary Scott Bessent speaks at the 2026 Republican National Convention on Wednesday. The Trump administration is trying to control rising yields.
U.S. Treasury yields were surging Thursday ahead of a looming debt buyback operation by Treasury Secretary Scott Bessent designed to provide calm to the bond market.
The fresh tumult comes as traders grow increasingly anxious about the recent jump in oil prices and inflation data. That had the benchmark 10-year Treasury yield BX:TMUBMUSD10Y up 8 basis points to 4.92%, putting it in jeopardy of hitting the 5% threshold.
That level matters for investors, because the stock market has been vulnerable when 10-year yields have held above 5%.
"If we take out this 4.95% level, I think we are going to 5%," Tom di Galoma, a managing director at Mischler Financial Group, said Thursday morning.
Inflation is a problem, with Brent crude-oil futures (BRN00) rising above $105 on Thursday, di Galoma said. "So, really, everything is just coming down to higher inflation."
After climbing over the past two weeks, the 10-year yield was trading at its highest level since Oct. 25, 2023, according to Dow Jones Market Data.
More broadly, higher yields matter because they increase the cost of capital. That's crucial right now because major technology and semiconductor companies at the heart of the artificial-intelligence boom have been driving the stock market's big gains over four years.
The AI build-out heavily hinges on borrowing, while major world economies also must compete for dollars as they issue debt to fund large deficits.
That tension added to the summer surge in U.S. bond yields, which prompted Treasury Secretary Bessent in August to intervene with plans to increase Treasury buybacks of long-dated bonds to keep a lid on rates.
Bond traders were underwhelmed Wednesday when Bessent indicated that the first of a series of buyback operations through early November would be only up to $6 billion.
The first operation of the series is due Thursday afternoon. But there's also a $22 billion auction of 30-year Treasurys BX:TMUBMUSD30Y on tap during the session.
This comes as both U.S. crude (CL00) (CL.1) and Brent futures were heading for their highest close since late May, according to Dow Jones Market Data.
The odds of a Federal Reserve rate hike next week jumped to about 70% on Thursday after the inflation data, up from closer to 61% a day ago, according to the CME FedWatch Tool.
If the Fed doesn't hike rate next week, there's a risk that long-dated Treasury yields could become "unanchored" and more disorderly, said Ed Al-Hussainy, portfolio manager at Columbia Threadneedle.
Furthermore, Al-Hussainy said the Treasury and Fed likely will be more concerned about the potential for bond-market tumult to unleash financial stability concerns.
Stocks were lower for a fourth day on Thursday, with the Dow Jones Industrial Average DJIA off 0.5%, the S&P 500 SPX 0.4% lower and the Nasdaq Composite Index COMP down 0.4%, according to FactSet.
-Joy Wiltermuth