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US Treasury Yields Plunge Amid Iran Sanctions and Geopolitical Uncertainty
· Confirmed
In Short: The surge in Treasury yields was partly due to geopolitical uncertainty caused by the Iran war and growing federal budget deficits.
US Treasury yields logged their biggest drop since the 2023 banking crisis, driven by geopolitical tensions and economic pressures. The 10-year Treasury yield, a key benchmark for the U.S., rose to 5.34% during Thursday's trading session, the highest level since 2002, before declining later in the day and into Friday.
The surge in Treasury yields was partly due to geopolitical uncertainty caused by the Iran war and growing federal budget deficits. US Treasury Secretary Scott Bessent prepared to announce new sanctions that Washington said would add further pressure on Iran's economy, already battered by previous sanctions and a US naval blockade.
Brian Therien, senior analyst at Edward Jones, told FOX Business that higher Treasury yields could impact consumers through higher interest rates, particularly adjustable-rate debt such as credit cards, home equity lines of credit, and adjustable-rate mortgages.
The yield on the 10-year Treasury note hit its highest level since 2002 during Thursday's trading session, impacting the economy and households. The 2-year Treasury yield also spiked to 4.91%, the highest since May 2024, while the 30-year Treasury yield reached 5.39%, the highest since July 2004.
The White House denied that the Administration was considering a ban on U.S. diesel exports, clarifying comments from President Donald Trump and Treasury Secretary Scott Bessent that appeared to leave the door open to restrictions as the average diesel price in America topped $6.50 per gallon.
Analysts at Danske Bank noted that pressure was on the long end of the US Treasury curve due to not only supply of Treasuries but also from hyperscalers. They warned that 10Y and 30Y Treasuries could hit 6% as investors demand a higher premium for the long end.
The 10-year Treasury yield's rise to 5.34% during Thursday's trading session was widely expected, but investors remained uncertain about how many hikes the US central bank might eventually implement and the implications for already-climbing Treasury yields.
Former Treasury minister and adviser to Burnham in the Makerfield campaign Lord Jim O’Neill said Burnham’s first statement in Commons was: “The last thing investors wanted to hear… gilt yields have risen by a 0.25% in one day, which is a lot. We’ve not had that since Liz Truss days… If your country is under the focus of ‘can they come up with a sensible fiscal strategy’ on a day when the markets think ‘well no, you’re not showing any sign of it’ you’re going to have a tough day…if it stays like this your mortgage rate is going up.”
What this adds
The surge in Treasury yields was partly due to geopolitical uncertainty caused by the Iran war and growing federal budget deficits, as well as tighter monetary policy and more competition in the bond market from mounting levels of corporate debt issuance due to the AI buildout.
Background
US Treasury yields logged their biggest drop since the 2023 banking crisis, driven by geopolitical tensions and economic pressures.
What's confirmed
- The 10-year Treasury note is a key benchmark for the U.S.
What's still developing
- Brian Therien, senior analyst at Edward Jones, told FOX Business that higher Treasury yields "may be a headwind by increasing borrowing costs for households and business," potentially causing interest rate-sensitive areas of the economy like housing and auto sales to slow despite a solid labor market and resilient consumer spending.
- "But the improvement in purchasing power depends on inflation and taxes. A Treasury bond purchased today can still lose market value if yields rise further and its owner sells before maturity."
- Stocks have taken cues in recent weeks from rising Treasury yields and surging oil prices amid the escalating conflict in the Middle East.
- Rate-sensitive sectors, including banks and real estate-linked names, gave back some of the week's gains as European bond yields tracked the jump in US Treasuries following the payrolls data.
- Banks California Canada CRE, the Epic Mess Credit Bubble Debtor Nation Drunken Sailors Europe Federal Reserve Housing Bubble 2 Inflation & Devaluation Japan Jobs Markets & Companies Oil, Gas, Power Trucks & Cars Trade & Transportation Treasury yields in the 2-year to 10-year range spiked by 12 to 14 basis points this morning, with the 7-year yield going over 5% and the 10-year yield hitting 5.10% currently, after the S&P’s Flash PMI showed red-hot growth and underlying inflation pressures in services and manufacturing, while the announcement of another Treasury buyback auction tomorrow fell flat.
- The $6 billion cap at face value is the same as at the last buyback auction of this type held on September 11, after which yields spiked further, which was not the purpose.
- Someone is getting spooked: It took a yield of 5.033% to sell all $80 billion in notes, the highest auction yield since before 2006 (which is as far as I checked).
- Treasury said it would buy back up to $6 billion at face value of 20-year and 30-year bonds maturing between February 2047 and February 2056.
- The 30-year Treasury yield spiked by 9 basis points to 5.39% at the moment, the highest since July 2004, having edged past the 5.37% high on September 10, and past the 5.35% high in June 2007.
- At 5.09%, yields are not high in a historical context beyond the era of QE: The Treasury buyback announcement this morning fell flat.
- Are you a treasury or operations manager looking to mitigate the risks and efficiently manage your business’ cash flow?
- The purpose of these buyback auctions is to push down long-term Treasury yields.