Oil nears $110, Bessent’s buyback falls short, Trump’s $5,000 pledge jolts stocks and bonds

A rare convergence of headwinds hit U.S. markets on Thursday, driving a broad jump in Treasury yields and pressuring equities. Brent crude surged to a near four-month high, a Treasury buyback operation under Secretary Scott Bessent failed to meet its expanded target, and President Trump revived fiscal fears by pledging more than $1 trillion in direct payments if Republicans win control of both chambers in the midterms. Rates moved sharply higher across the curve. The 30-year Treasury yield rose 8 basis points to 5.37%, its highest level since 2007. The 10-year yield climbed 12 basis points to 4.943%, closing in on the psychologically important 5% level. The 2-year yield jumped 16 basis points to 4.59%, its biggest one-day gain since the April 2025 tariff shock. Stocks fell alongside bonds. The S&P 500 lost 0.6%, the Nasdaq 100 dropped 0.9%, and the Dow Jones Industrial Average fell 317 points. Oil becomes the latest inflation spark Middle East tensions pushed crude to the center of the latest bond selloff. Reports cited a Houthi militia takeover of a key Yemeni port and a sharp drop in Saudi output as major drivers. An OPEC report released Thursday showed Saudi Arabia produced just 6.2 million barrels per day in August, the lowest monthly level since 2026 and a 23% drop from July. Brent settled up 6.3% at $107.63 a barrel and then rose to about $109 in after-hours trading, the highest in nearly four months. Rapidan Energy Group founder Bob McNally, a former energy adviser to President George W. Bush, said the market is correcting what he called its biggest pricing error since the 2022 Russia–Ukraine conflict. Hotter inflation data reinforced the move. U.S. Labor Department data showed August producer prices (PPI) rose 5.4% year over year, up from 4.7% and above expectations, with higher fuel costs a key factor. Interest-rate futures indicate markets lifted the implied probability of a Fed rate hike at next week’s meeting to 71%, up from 49% a week earlier. S&P Global Energy’s Jim Burkhard said the market is adapting to a new normal of unresolved conflict and maritime risk. Treasury buyback disappoints despite bigger cap The Treasury’s long-term bond repurchase operation failed to calm investors and instead became another catalyst for selling. Bessent had said the department would at least double the size of long-dated buybacks to $4 billion per operation, then raised the first enlarged cap to $6 billion on Wednesday. Results released Thursday afternoon showed the Treasury bought $5.19 billion of 10- to 20-year notes, short of the $6 billion ceiling, even though total bids reached $10.5 billion. Long-term yields pushed higher after the announcement. DWS Americas fixed-income head George Catrambone said the intervention was too small for the moment: "Bessent brought a water gun to fight a fire," he said, arguing that debt, deficit and inflation concerns are driving a larger risk premium in 30-year Treasuries. Some analysts cited by Bloomberg suggested the shortfall could reflect the Treasury rejecting unattractive offers rather than weak demand. Bessent said in an interview: "We only buy bonds when they're cheap. It seems everyone wants to hold onto their longterm bonds." TD Securities strategist Molly Brooks said the outcome points to unusually strict selection criteria, warning that meeting market expectations may require accepting less competitive bids later. The Treasury also sold $22 billion of 30-year bonds at the highest borrowing cost in 25 years. The auction stopped at 5.308%, up from 5.216% last month and the highest since 2001, while strong demand helped absorb the supply. Trump’s $5,000 “dividend” revives deficit fears Fiscal concerns escalated after Trump, speaking at a Republican midterm rally in Dallas on Sept. 9, pledged a $5,000 payment to every adult American if Republicans win majorities in both chambers. Multiple media estimates put the plan’s cost at roughly $1.2 trillion to $1.3 trillion, far above annual tariff revenues of about $190 billion. The Wall Street Journal noted the figure is nearly 70% of last year's $1.8 trillion U.S. fiscal deficit, excluding any additional stimulus. Without new revenue sources, markets see the proposal as implying more borrowing. As of Tuesday, total U.S. national debt stood at $39.9 trillion, with $32.4 trillion held by the public. Inflation risks also remain front and center. U.S. inflation is running at 3.4% annually, and large cash distributions could lift consumption and add demand-side pressure. If implemented, the resulting inflation could also prompt tighter monetary policy, reducing the net growth boost. TD Securities rates strategist Pooja Kumra said bonds are taking a double hit as oil climbs and both buyback results and credibility concerns push term premiums higher. The 5% line: a market tripwire The 10-year yield’s approach toward 5% is widely viewed as a threshold that could force broader repricing across assets. CFRA Research chief investment strategist Sam Stovall called 5% an "emotional threshold," warning that a break above it could amplify investor unease and deepen market weakness. Rate-sensitive areas of the stock market led declines on Thursday. The Russell 2000 fell about 1%, and the S&P 500 materials sector slid 1.5%. All three major U.S. equity indexes are down so far this month. Some equity investors are now looking to Friday’s CPI report and next week’s Fed decision. Nationwide chief market strategist Mark Hackett said the bigger risk may be a meaningful CPI surprise, which could trigger a more sustained downturn than the "somewhat arbitrary" 5% yield marker.