Photo by Anne Nygård on Unsplash
The US 10-year Treasury yield fell to between 5.17% and 5.19% on Friday, easing after a sharp selloff over the previous two to three sessions that had pushed the yield up roughly 20 to 23 basis points. The retreat offered a measure of relief to markets that had been rattled by a swift and painful repricing of government debt earlier in the week.
Brent crude also pulled back, falling around 0.8% to approximately $105.70 a barrel. That decline retraced part of a more than 7% surge over the prior two trading sessions, when fears of a wider conflict had sent energy prices sharply higher. The two-year Treasury yield eased as well, settling at roughly 4.90%, mirroring the broader cooling across maturities.
Signs of Diplomatic Progress
The pullback in yields came amid signs that US and Iranian negotiators may be exploring a phased agreement, a financial market data and analysis service reported. That potential arrangement could include reopening the Strait of Hormuz, a critical artery for global oil shipments, while Washington considers easing certain measures in return. Any progress on that front would help explain why both bond yields and oil prices retreated in tandem on Friday, since geopolitical risk premiums had been a major driver of the prior selloff.
Still, the relief was only partial. Despite Friday’s pullback, both Treasury yield tenors remained elevated relative to pre-selloff levels, with borrowing costs still near 2007 highs. That context matters: even after easing, yields sit at levels not seen in nearly two decades, meaning the cost of borrowing for consumers, businesses and the government itself remains historically steep.
Fed Expectations and Inflation Worries
Investors currently expect the Federal Reserve to raise the federal funds rate by 25 basis points next month, with the probability of such a move standing at around 66% to 70%, according to a financial market data and analysis service. That expectation has been reinforced by hawkish comments from Fed officials, which traders refocused on even as the geopolitical picture showed tentative signs of improvement.
A lack of concrete progress in US-Iran negotiations to end the conflict continued to fuel inflation concerns, the financial market data and analysis service said. Adding to those worries, the University of Michigan’s consumer sentiment survey confirmed a sharp rise in inflation expectations in September. Together, the hawkish Fed rhetoric and rising inflation expectations have kept upward pressure on yields even as oil prices and the immediate crisis atmosphere have cooled somewhat.
A Volatile Week for Bonds
The scale of Friday’s relief only makes sense against the backdrop of what preceded it. A day earlier, on Thursday, the yield on the 30-year US Treasury bond had soared as high as 5.47%, a level not seen in 22 years. Oil prices had jumped in tandem, reaching as high as $108 per barrel that same day, according to a financial news report.
That spike reflected acute market stress, with investors demanding sharply higher compensation to hold long-term government debt. The rise in bond yields has continued despite measures taken by Treasury Secretary Scott Bessent, including efforts to cap long-dated yields through increased Treasury buybacks. Those efforts are seen as having had limited impact, a financial news report and a financial market data service both noted, underscoring how difficult it has been for policymakers to contain the selloff through conventional tools.
Global Markets Stabilize
Global bond markets found tentative stability in Asia after the sharp two-day selloff had pushed yields to multi-decade highs, a market analysis desk reported. The stabilization was not confined to the United States; the retreat in oil prices played a central role in calming nerves across regions.
A pullback in oil prices helped stabilize the situation, with markets shifting from panic selling to reassessment, the market analysis desk said. That shift in tone, from outright panic to a more measured evaluation of risk, is significant. It suggests that while the underlying tensions driving the selloff have not been fully resolved, investors are no longer treating the situation as an immediate emergency requiring rapid liquidation of positions.
Taken together, Friday’s developments represent a pause rather than a resolution. Key figures from the past several days illustrate the whipsaw conditions markets have endured:
- 10-year Treasury yield: eased to 5.17%-5.19% Friday, after rising 20-23 basis points over prior sessions
- 30-year Treasury yield: peaked at 5.47% Thursday, a 22-year high
- Brent crude: fell to about $105.70 a barrel Friday, after surging past $108 Thursday
- Two-year Treasury yield: eased to roughly 4.90%
With the Fed’s next policy decision looming and inflation expectations climbing, traders are likely to remain highly sensitive to any fresh developments in the Iran negotiations. Whether Friday’s calm holds may depend heavily on whether diplomatic talks yield anything more concrete than the phased framework currently under discussion.
