The sharp sell-off in the US Treasury market worsened further on Thursday (September 10). Confidence among investors continued to take a hit as the latest 30-year US Treasury auction produced weak results, and US Treasury Secretary Scott Bessent’s first expanded US Treasury buyback operation failed to stabilize the market.

At the same time, a sudden jump in oil prices, coupled with the latest inflation data that raised market expectations of a Fed rate hike next week, further exacerbated market turmoil.

The benchmark 10-year US Treasury yield rose 12 bASIs points on Thursday to 4.96%, hitting its highest level in roughly three years and approaching the key psychological threshold of 5%.

"Everything is being sold," said Tom di Galoma, Managing Director at Mischler Financial Group. The market is dumping US Treasuries across all maturities from 2-year to 30-year tenors.

He noted that the US Treasury only bought back about $5.2 billion of long-term bonds in this operation. The market was already disappointed by the plan announced by the Treasury one day earlier, which stated it would only consider buying back up to $6 billion in bonds going forward, while traders had expected a much larger intervention.

In addition, the poor outcome of the $22 billion 30-year US Treasury auction held on Thursday further weighed on market sentiment.

Although the auction finally attracted buyers at a high yield of 5.308%, yields kept climbing after the auction closed.

Global Bond Markets Under Synchronized Pressure

As the sell-off spread to overseas markets, global bond yields rose broadly on Thursday.

"We are seeing the cost of capital rise around the world," said Tim Horan, Chief Investment Officer for Fixed Income at Chilton Trust.

Market anxiety was further fueled by climbing energy prices. Brent crude futures broke above $107 on Thursday, stoking investors’ fears of renewed inflation.

From a broader perspective, rising bond yields mean higher capital costs, which carry particular significance for the current market.

The artificial intelligence industry, large tech and semiconductor firms — major drivers of the stock market rally over the past four years — are heavily reliant on financing.

Building AI infrastructure requires massive borrowing, while major global economies must compete for US dollar liquidity when issuing debt to cover huge fiscal deficits.

Bessent Tried to Push Yields Down, Only to Face Market Pushback

This dynamic has driven US Treasury yields higher throughout this summer, prompting Treasury Secretary Bessent to take action in August by announcing an increase in long-term Treasury buybacks in hopes of capping further yield increases.

Earlier this week, Bessent even told the market: "You can bet against me if you want."

He also stated: "Now, I am the house."

But Horan of Chilton Trust responded: "Thursday’s market reaction shows the real house is the market, not the Treasury."

He said the Treasury may be a "big player" in the market trying to draw a red line via the buyback program, yet market forces are "stronger than that red line."

Soaring Rate Hike Expectations Put the Fed in a Dilemma

According to Dow Jones Market Data, both US WTI crude and Brent crude futures climbed on Thursday to their highest levels since mid-May.

Meanwhile, the CME FedWatch Tool showed that following the release of the latest inflation figures, the market’s probability of a Fed rate hike next week surged to roughly 73%, up from only about 61% the previous day.

Ed Al-Hussainy, Portfolio Manager at Columbia Threadneedle, warned that if the Federal Reserve does not raise rates next week, long-term US Treasury yields risk becoming "unanchored" and triggering greater market chaos.

He believes the US Treasury and the Federal Reserve may now be more concerned about financial stability risks sparked by bond market turbulence.

While this scenario has not yet materialized, Thursday’s violent market swings deserve close monitoring, especially sharp moves in short-dated Treasury yields.

Two major forces are driving this volatility: rising market expectations for Fed rate hikes, and further increases in oil prices.

US Stocks Fall for Fourth Consecutive Session

FactSet data shows US equities closed lower for a fourth straight trading day on Thursday:

● Dow Jones Industrial Average fell 0.6%;

● S&P 500 Index fell 0.6%;

● Nasdaq Composite Index fell 0.7%.

The market is watching whether the bond market will continue to challenge the capacity of policy intervention as the US Treasury attempts to control borrowing costs.

Core Takeaway: Bessent sought to stabilize the Treasury market via buybacks, yet investors responded with higher yields, signalling that US debt pressures are directly clashing with policy tools.