Treasuries Rally After Oil Drop, Easing Pressure on Bessent

U.S. Treasuries rallied on Tuesday after Brent crude fell more than 4%, easing near-term inflation concerns and supporting demand for government bonds. Yields moved down roughly five to seven basis points across the curve. The 30-year yield has fallen about 12 basis points to 5.16% since Treasury Secretary Scott Bessent announced plans to expand purchases of longer-dated debt.

The decline in oil followed reports that the U.S. was preparing to return diplomats to embassies in the Middle East, prompting markets to expect a lower risk of wider conflict. A two-year note auction drew stronger-than-expected bids, which also contributed to demand for Treasuries on Tuesday.

Last week Bessent said the Treasury would at least double its purchases of long-term securities and launched a surprise buyback program to reduce the outstanding supply of longer-dated debt. The buyback provided near-term support by indicating Washington would act to limit supply if yields rose. Officials cited lower 10-year yields as one metric to assess the policy.

Market participants expressed skepticism that the purchases will reverse broader upward pressure on yields. Inflation readings remain elevated. Investors pointed to large government borrowing needs and rising issuance of Treasury securities as ongoing pressures on long-term rates.

Corporate borrowing has also increased, with technology companies among firms raising funds to build artificial intelligence infrastructure. That private-sector issuance adds to the overall supply of debt in the market.

Stanley Druckenmiller criticized the Treasury’s actions, calling the intervention a mistake and adding ‘attempts by governments to defend asset prices against underlying fundamentals are unlikely to succeed.’

Oil prices remain above pre-war levels. Inflation readings are still elevated. Long-term borrowing costs continue to respond to the volume of government issuance and other fiscal pressures.