Yields climb as oil continues to rally. Treasury yields continued to rise as tensions in the Middle East remain heightened, driving oil higher, with Brent crude surpassing $100 per barrel. The Treasury’s $6 billion buyback announcement fell short of expectations, placing additional upward pressure on yields, especially at the long end. The 2-year yield closed 4 bps higher at 4.43%, and the 10-year yield closed 5 bps higher at 4.84%. Meanwhile, equities continued to slide, with the S&P 500 and NASDAQ closing 0.48% and 0.64% lower, respectively.
Iran threatens to further escalate the war. The Iran war has continued to escalate after overnight missile attacks on US Navy vessels were followed by American attacks on Iranian tankers. According to a senior official from the Islamic Republic, Iran is ready for a more intense war and will escalate in retaliation to US strikes. When asked about the chances of negotiation, President Trump responded, “Yes, a negotiation could possibly happen but it’s not something we’re looking at.” Additionally, he believes the war will conclude “immediately after the election,” as congressional Midterms approach in early November. WTI crude is now trading at $96.05, its highest level since May.
Treasury buyback size fails to meet market expectations. Treasury Secretary Scott Bessent today said his department would upsize its debt buyback program to $6 billion, a marked increase from the $2 billion initially disclosed, and scheduled to begin tomorrow afternoon. Despite the program’s focus on longer-dated debt, the 10-year Treasury hit a new three-year high today. The initial announcement in August came outside the Treasury’s quarterly refunding schedule and took markets by surprise. However, Steven Zeng, strategist at Deutsche Bank AG, said today’s move failed to generate the “shock and awe” from investors that was wanted, adding that “Treasury created this monster that it now has to keep feeding.”