ASIa Pacific News Desk — Thursday (Sep 10), US long-term borrowing costs soared to their highest level in nearly two decades. Driven by oil prices climbing to $109 per barrel and disappointing results from the US Treasury’s bond buyback operation, global bond markets were hit by another massive selloff.
(Screenshot Source: Financial Times UK)
The US 30-year Treasury yield rose 8 bASIs points at one point to hit 5.37%, its highest reading since 2007. Investors reacted coolly to the Treasury buyback programme pushed by US Treasury Secretary Scott Bessent.
In the first round of buyback operations held that day, the Treasury originally planned to purchase $6 billion worth of Treasury bonds, but only accepted $5.2 billion in sell offers, falling short of the target.
The world’s most important interest rate benchmark, the US 10-year Treasury yield, moved even higher after the buyback results were released, climbing 11 bASIs points to 4.95%, just a hair away from the 5% threshold.
Meanwhile, fresh supply concerns triggered by the Middle East conflict pushed global crude oil prices to a nearly four-month high, adding further pressure to bond markets.
Pooja Kumra, Rates Strategist at TD Securities, said: “Bond markets are taking a double hit — oil prices keep rising, while US Treasury buybacks and fiscal credibility risks are pushing the term premium higher.”
Oil Price Hikes + Fiscal Pressure: US Bond Market Under Dual Strain
Another factor stoking market anxiety is a plan put forward by US President Donald Trump on Wednesday:
If Republicans retain control of Congress, he will issue a $5,000 “dividend” to every adult US citizen.
The plan is projected to cost more than $1 trillion, further fuelling investor fears of a widening US fiscal deficit.
Previously, Bessent had hoped to stabilise markets by repurchASIng long-dated Treasury securities.
Yet investors were unsatisfied with the scale of this round of buybacks. The Treasury had earlier stated it would “at least double” long-term bond buybacks to $4 billion.
Nevertheless, markets believe the $6 billion operation is still insufficient to alter the supply-demand balance for long-duration bonds.
US 30-Year Treasury Auction Sees Highest Borrowing Cost in 25 Years
At the same time, the US Treasury completed a closely watched 30-year Treasury auction on Thursday.
The issuance size was $22 billion, with a final awarded yield of 5.308%.
That was higher than the 5.216% yield at last month’s auction and marked the highest level since 2001.
Even so, the high yield attracted a wave of investors, keeping demand for the bonds robust.
Middle East Risks Lift Oil Prices, European Bond Markets Come Under Pressure Too
Global bond pressure is not confined to the United States.
European bond yields also rose sharply.
The contributing factors include:
● Houthi forces seizing a key port in Yemen;
● A sharp drop in Saudi crude output;
● Market fears of disrupted global energy supplies.
(Screenshot Source: Financial Times UK)
The global benchmark Brent crude jumped 6.3% on Thursday to settle at $107.63 per barrel, then advanced further to $109 per barrel in after-hours trading. US WTI crude posted similar gains.
(Screenshot Source: Financial Times UK)
Soaring Oil Prices Reshape Market Expectations, Fed Rate Hike Bets Rise
Higher oil prices prompted traders to reprice odds of another Federal Reserve interest rate increase.
The US 2-year Treasury yield, highly sensitive to rate expectations, climbed 16 bASIs points to 4.58%.
The Fed’s rate-setting committee will hold its meeting next week, and there are clear divisions internally over the future rate path.
Saudi Output Plunges 23%, Oil Market Enters a “New Normal”
One major driver of oil gains is the latest OPEC data showing:
Saudi Arabia reported to the cartel that its August production stood at only 6.2 million barrels per day, the lowest monthly level in 2026 and down 23% from July.
Bob McNally, founder of Rapidan Energy Group and former energy advisor under the George W. Bush administration, said: “The oil market is correcting the biggest mispricing since the 2022 Russia-Ukraine conflict.”
He noted: “In the past, the market overestimated the scale and duration of supply disruptions, while now it has become overly optimistic.”
US Inflation Pressures Re-emerge
US data released on Thursday also showed inflation pressures picking up again.
Driven by higher fuel costs, the US Producer Price Index (PPI) rose 5.4% year-on-year in August, up from 4.7% in July and exceeding Wall Street analyst estimates.
Trump acknowledged this week that oil prices are likely to remain elevated at least until the US midterm elections. He said prices would “drop sharply” after the elections.
But market analysts are rapidly upgrading oil price forecasts for 2026 and 2027, as there is no sign of a peace deal between the US and Iran.
Markets Enter a “New Normal of High Oil Prices”
S&P Global Energy said on Thursday that with fading prospects for a resolution to the Iran conflict, oil markets are entering a new normal of higher prices.
Jim Burkhard, Vice President and Global Head of Crude Oil Research at S&P Global Energy, stated: “Markets are not returning to calm. Instead, they are adapting to a new reality: peRSIstent conflict, long-standing maritime risks, and crude flows still below pre-war levels.”
Stocks and Bonds Sell Off Together, US Equities Slide
As bond markets were being sold off, equities also took a hit.
● S&P 500 fell 0.6%
● Nasdaq 100 dropped 0.9%
● STOXX Europe 600 lost 0.7%
Global financial markets are simultaneously facing multiple headwinds:
high oil prices, rebounding inflation, widening fiscal deficits, and interest rates staying elevated for longer.
Market focus has shifted to:
whether US Treasury yields can hold above the 5% mark, and whether the global economy is entering a new cycle of “high rates + high inflation”.