Bessent Says U.S. Bond Market Is “Strong,” but 10-Year Yield Breaks Above 5% to 19-Year High

【Financial News, New York = Reporter Lee Byung-chul】Scott Bessent, the U.S. Treasury secretary, expressed confidence that the U.S. bond market was “the strongest among developed countries,” but the yield on the 10-year U.S. Treasury note rose above 5%. It reached its highest level in 19 years. With international oil prices nearing $109 a barrel amid supply concerns stemming from the Middle East, fears of renewed inflation and additional Federal Reserve (Fed) rate hikes weighed on the Treasury market. The pressure was compounded by the United States’ massive fiscal deficit and the burden of Treasury issuance. As a result, market tensions are rising over whether 5% is the peak for the 10-year yield or the beginning of a new era of high interest rates.
A 10-year U.S. Treasury yield rose above 5.04% during trading on the 15th (local time), reaching its highest level since 2007. The yield had also broken above 5% the previous day. Since the global financial crisis, the 10-year yield has exceeded 5% only once, in 2023. Bond prices and yields move in opposite directions.
The immediate trigger for the bond-market turmoil was a surge in international oil prices. Brent crude, the benchmark for global oil prices, rose 2.9% to $108.75 a barrel that day. The East–West Pipeline, a key crude-oil transport network in Saudi Arabia, was attacked and shut down. Concerns have grown that supply disruptions in the Middle East could last longer than expected.
The bond market is watching not only how high oil prices rise, but also how long prices above $100 a barrel will persist. If higher energy costs continue for an extended period, they could spread through transportation and production costs into the prices of goods and services, pushing inflation higher again.
As a result, a chain reaction has formed: “Middle East supply shock → oil-price surge → renewed inflation → Fed rate hikes → Treasury sell-off.”
With the Federal Open Market Committee (FOMC) set to announce its decision on the 16th, just one day away, markets are pricing in a strong possibility of a Fed rate hike. Interest-rate futures are also reflecting the possibility of at least three additional rate hikes by next July. If the rise in oil prices proves more than a temporary shock, concerns that the Fed’s tightening cycle could last longer than expected are pushing long-term yields higher.
The resilience of the U.S. economy despite high interest rates is also weighing on the bond market. Brian Moynihan, chief executive officer (CEO) of Bank of America, told The Wall Street Journal that “the Fed will raise rates, but it will not be able to derail the economy’s underlying momentum.” Demand for loans from consumers and businesses also remains solid despite high borrowing costs. The fact that concerns about growth and inflation outweigh fears of a recession is helping keep long-term yields elevated.
Treasury Secretary Scott Bessent appeared before the United States House Committee on Financial Services that day and emphasized that the recent surge in interest rates did not indicate a problem in the U.S. Treasury market. He said that since President Trump took office, the U.S. bond market had been “the best-performing bond market among developed countries,” adding that recent Treasury auctions had also been successful. He also argued that the Treasury Department’s expanded buyback program, aimed at stabilizing long-term yields, was having its intended effect.
Bessent nevertheless acknowledged that the United States’ fiscal problems were affecting Treasury yields. He explained that several factors determine the 10-year yield and indicated that the federal budget deficit was also influencing long-term interest rates.
Some analysts say the recent surge in yields cannot be explained by oil prices alone. With increased Treasury issuance resulting from massive fiscal deficits and the burden of government debt already pushing long-term yields higher, the oil-price surge served as an additional trigger for selling, they said.
A 5% yield on the 10-year Treasury note poses a significant burden for the U.S. economy and financial markets. The 10-year yield is a key benchmark that determines borrowing costs across the U.S. economy, from mortgages to auto and corporate loans. Higher Treasury yields raise companies’ financing costs while making bonds more attractive as investments, putting pressure on stocks as well. New York stocks also came under pressure that day as oil prices and Treasury yields rose together.
Analysts say the future direction of the 10-year yield will depend on Fed monetary policy and the path of oil prices. Long-term yields could stabilize if the Fed demonstrates a strong commitment to tightening and keeps inflation expectations in check. Conversely, if international oil prices remain above $100 a barrel for an extended period while the U.S. economy continues to grow solidly, the 5% level for the 10-year yield could mark not the ceiling of the current rise but the starting point of a new high-interest-rate range.




[email protected] Reporter Lee Byung-chul Reporter