Oil Near $110, Bessent Backfires, Trump Cash Pledge Trigger Stock-Bond Selloff

Original author: Dong Jing

Original source: Wall Street CN 0

Multiple bearish factors erupted simultaneously, dealing a rare blow to U.S. financial markets. Oil prices surged to a four-month high, the Treasury's bond buyback operation disappointed the market, and Trump's promise to hand out over a trillion dollars in "cash"—the triple pressure sent Treasury yields soaring across the board, with the 30-year yield hitting a 19-year high and the 10-year yield approaching the critical 5% psychological threshold. Stocks fell in tandem, staging a "stock-bond selloff."

On Thursday, the Treasury market was hit by multiple blows. Brent crude settled up 6.3% on the day at $107.63 per barrel, and rose further to $109 in after-hours trading. A Wall Street CN article noted that data released Thursday showed the U.S. Producer Price Index (PPI) rose 5.4% year-over-year, above expectations; the bond buyback operation led by Treasury Secretary Scott Bessent failed to reach the $6 billion cap, with actual purchases of only $52 billion, raising serious doubts about his ability to stabilize long-term interest rates.

Meanwhile, the Wall Street CN article mentioned, citing CCTV International, that on September 9 local time, U.S. President Trump said at the Republican midterm election rally in Dallas that if Republicans win majorities in both the House and Senate in the midterm elections, he promises to give $5,000 to every American adult. According to multiple media estimates, the total cost of the plan is about $1.2 trillion to $1.3 trillion, far exceeding the roughly $190 billion annual tariff revenue, which could exacerbate debt and inflation pressures.

The market reaction was swift and violent. The 30-year Treasury yield jumped 8 basis points on the day to 5.37%, the highest since 2007; the 10-year yield climbed 12 basis points to 4.943%, approaching its late-2023 peak; the more policy-sensitive 2-year yield soared 16 basis points on the day to 4.59%, the biggest one-day jump since the April 2025 tariff turmoil.

Stocks also came under pressure, with the S&P 500 down 0.6%, the Nasdaq 100 down 0.9%, and the Dow Jones Industrial Average falling 317 points.

Oil Prices: A New Inflation "Flashpoint"

The situation in the Middle East continues to deteriorate, and oil prices have become the core trigger for this round of bond market selling. According to media reports, Houthi forces seized an important port in Yemen, combined with a sharp drop in Saudi Arabia's crude oil production, jointly driving oil prices sharply higher.

In addition, OPEC's report released Thursday showed that Saudi Arabia's daily production in August was only 6.2 million barrels, the lowest monthly level since 2026, a plunge of 23% from July.

Brent crude settled up 6.3% on the day at $107.63 per barrel, and rose further to $109 in after-hours trading, the highest level in nearly four months. Bob McNally, founder of Rapidan Energy Group and former energy adviser to President George W. Bush, said:

"The oil market is correcting the biggest pricing error since the 2022 Russia-Ukraine conflict. Back then, the market was overly pessimistic about the scale and duration of supply disruptions, and now it is overly optimistic."

Rising oil prices directly push up inflation expectations and reinforce market bets on Fed rate hikes. Data released Thursday by the U.S. Bureau of Labor Statistics showed that the August PPI rose 5.4% year-over-year, up from 4.7% the previous month, exceeding Wall Street expectations, with rising fuel costs the main driver. Interest rate futures data showed the market's probability of a Fed rate hike at next week's meeting rose to 71% from 49% a week ago.

Jim Burkhard, vice president at S&P Global Energy and head of global crude oil research, pointed out:

"The market is not returning to calm, but adapting to a new normal defined by unresolved conflicts and persistent maritime risks—a normal in which oil flows will remain below pre-war levels and the outlook remains highly uncertain."

Bessent "Backfires": Buyback Operation Counterproductive

The Treasury's bond buyback operation not only failed to stabilize the market but became a catalyst for a new round of selling. Bessent announced last month that he would "at least double" the size of long-term Treasury buybacks to $4 billion per operation, and on Wednesday announced the first expanded operation cap of $6 billion—three times the previous maximum. However, results released Thursday afternoon showed the Treasury actually purchased only $51.9 billion of 10- to 20-year Treasuries, below the $6 billion cap, even though the total offers submitted by the market reached $105 billion.

After the results were released, long-term yields rose further, and market confidence in Bessent's intervention ability was clearly shaken. George Catrambone, head of fixed income at DWS Americas, said bluntly:

"Bessent brought a water pistol to a firefight. Given the current debt, deficit, and inflation concerns, this is far from enough to quell the risk premium investors demand to hold 30-year U.S. Treasuries."

According to Bloomberg, some analysts were more reserved, believing that the Treasury's purchase below the cap may have been a proactive rejection of unfavorable seller offers rather than insufficient market demand. Bessent himself explained in an interview: "We only buy back bonds when they are cheap. People seem to want to hold on to their long-term bonds."

However, TD Securities strategist Molly Brooks pointed out: "This shows the Treasury's screening criteria are stricter than usual. If the Treasury wants to meet market expectations and complete the full buyback to push down long-term rates, it may need to accept less competitive offers in the future."

Meanwhile, the Treasury on Thursday also completed a $220 billion 30-year bond auction at the highest borrowing cost in 25 years. The auction awarded at a yield of 5.308%, up from 5.216% last month, the highest since 2001. However, the high yield attracted enough buyers, and overall auction demand was strong.

Trump's "Cash Handout": Adding Fuel to the Fiscal Cliff

Trump's "cash handout" promise has made an already fragile fiscal outlook even worse. On September 9, Trump announced that if Republicans retain control of Congress in the midterm elections, he would give every American adult a $5,000 "dividend," a plan expected to cost over $1 trillion. This statement, against the backdrop of an already pressured bond market, further intensified investor concerns about the continued expansion of the U.S. fiscal deficit.

A Wall Street CN article mentioned that this amount is equivalent to nearly 70% of last year's $1.8 trillion U.S. fiscal deficit, and does not yet include any new stimulus spending. Without other revenue sources, this spending will ultimately translate into new government debt. As of Tuesday this week, total U.S. national debt had reached $39.9 trillion, of which $32.4 trillion is held by the public.

Inflation risks cannot be ignored either. The U.S. inflation rate has now risen to an annual rate of 3.4%. Large-scale cash distribution could further stimulate household consumption and increase demand-side pressure. Moreover, if the large-scale cash handout is ultimately implemented, further rising inflation pressure could prompt tighter monetary policy, partially offsetting the economic boost from cash stimulus.

According to The Wall Street Journal, the continued rise in bond yields is partly due to market concerns about the ever-expanding supply of U.S. government debt. Bessent has previously made clear that lowering the 10-year yield is a policy priority for this administration, but bond market movements show his credibility is being tested.

Pooja Kumra, rates strategist at TD Securities, concluded:

"Bonds are facing a double whammy—oil prices continue to rise, while the U.S. buyback operation and rising credibility risks are pushing up term premium."

The 5% Threshold: A "Sentiment Tipping Point" for Stocks

The 10-year Treasury yield approaching 5% is seen by the market as a key threshold that could trigger a broader repricing of assets. Sam Stovall, chief investment strategist at CFRA Research, said:

"I think 5% is a sentiment tipping point. Once breached, investors will become increasingly uneasy, which could lead to further market weakness."

Stocks have already begun to feel the pressure. Interest-rate-sensitive sectors led the decline. On Thursday, the Russell 2000 small-cap index fell about 1%, and the S&P 500 materials sector dropped 1.5%. So far this month, all three major U.S. stock indexes have recorded declines.

For now, some equity investors are choosing to temporarily ignore the bond market turmoil and turn their attention to Friday's upcoming CPI data and next week's Fed decision. Mark Hackett, chief market strategist at Nationwide, said:

"If Friday's CPI data deviates significantly from expectations, will stocks fall into a more prolonged downturn? That is a bigger risk than the seemingly somewhat arbitrary 5% yield threshold."