US Treasury yields surge as oil spike, buyback results fuel sell-off

The US bond market experienced a significant sell-off on Thursday, September 10, as soaring oil prices heightened concerns over inflation. The Treasury Department's first expanded bond buyback operation fell short of expectations, contributing to the drop in yields. Two-year yields surged by the most since April 2025, reaching 4.59%, following a four-month high in oil prices and a rise in wholesale inflation pressures.

The unexpected size of the buyback operation and the limited amount purchased by the Treasury Department fueled doubts about the administration's ability to stabilize the market and curb rising yields. Traders remain skeptical about the effectiveness of Treasury Secretary Scott Bessent's interventions, with some likening his efforts to "a squirt gun in a firefight."

The sell-off primarily impacted shorter-term securities, with traders anticipating potential rate hikes from the Federal Reserve. Brent oil prices reached over $107 a barrel due to tensions in the Middle East, further exacerbating inflation concerns. The prolonged conflict and lack of de-escalation efforts have contributed to rising energy costs and, consequently, bond yields worldwide.

Despite Bessent's efforts to reassure investors through a larger buyback program, the impact has been limited, leaving market participants uncertain about the government's commitment to stabilizing the bond market.