Despite lower oil prices and dovish comments from Federal Reserve officials, US Treasury yields are still rising.

The sell-off in US Treasury bonds continues to spread, with long-term yields repeatedly hitting new highs, making market assessments of the interest rate outlook increasingly complex.

On Tuesday, the 30-year U.S. Treasury yield hit a 24-year high, while the 10-year yield also rose to its highest level since 2002. This move was noteworthy—oil prices fell significantly that day, and New York Fed President John Williams also gave dovish signals, suggesting that there was no need to rush into raising interest rates. However, neither of these two negative factors could stop the rise in yields. The stubborn trend in the U.S. Treasury market is now spreading to the stock market, with the three major stock indexes closing slightly lower.

The continued rise in yields reflects the market's repricing of the Federal Reserve's interest rate hike path and concerns about inflation caused by energy price disturbances resulting from the conflict in Iran. Even with a temporary pullback in oil prices, investor confidence in the geopolitical situation remains fragile and is unlikely to shift towards optimism.

The 30-year yield broke through key levels, reaching a 24-year high.

The 30-year U.S. Treasury yield is currently at 5.564%, having touched 5.621% intraday on Tuesday, surpassing the intraday high of 2004 and reaching its highest level since June 2002.

The 10-year U.S. Treasury yield closed at 5.256%, also marking its highest closing level since 2002. However, the yield has not yet broken through the 2007 intraday high of 5.303%—a level considered by Wall Street as a more significant technical resistance level, which the market is closely watching.

"The market is really starting to figure out how much higher the Fed needs to push rates to achieve its goals," said Rebecca Venter, senior portfolio manager for fixed income clients at Vanguard.

The forces of bulls and bears are intertwined, leading to divergence in price movements between long and short ends.

Tuesday's bond market did not move in a one-sided manner; both bullish and bearish forces exerted pressure simultaneously, leading to a divergence in yields between long and short-term bonds.

Long-term yields came under pressure, partly due to supply-side shocks. Paramount Skydance is expected to issue approximately $32 billion in bonds to fund its acquisition of Warner Bros. Investors, looking to make room in their portfolios to absorb the new debt, put selling pressure on long-term Treasury bonds.

Short-term yields were pressured by comments from John Williams, an influential Federal Reserve official who said that another rate hike "later this year" might be appropriate, but stressed that there was "no need to rush" to raise rates. Earlier this month, the Fed voted to raise rates for the first time in three years.

Oil prices have fallen, but market confidence is struggling to recover.

Since the outbreak of the conflict with Iran, oil prices have been one of the key variables driving up US Treasury yields. Rising energy costs have exacerbated inflationary pressures, raising market concerns that the Federal Reserve may need to extend its rate hike cycle into next year.

On Tuesday, Middle Eastern crude oil exports rebounded to their highest level since the conflict began, causing Brent crude futures to fall 2.6% to $102.59 a barrel.

However, the decline in oil prices failed to effectively boost market sentiment. Baird investment strategist Ross Mayfield pointed out that after so many "false dawns" and constantly changing headlines, it is difficult for investors to truly build confidence in optimistic developments regarding the situation in Iran.

In a research report last week, Cboe Global Markets pointed out that the correlation between U.S. benchmark oil prices and 10-year U.S. Treasury yields has jumped to a 35-year high , only slightly below the historical record set at the beginning of the first Gulf War in 1990.

High yields are reshaping the stock market structure, with AI becoming the last line of defense.

Rising interest rates are profoundly changing the internal structure of the stock market. Mayfield stated that high interest rates are having the most significant impact on sectors such as housing and consumer goods. Meanwhile, with short-term Treasury bonds offering substantial returns, investors are inclined to withdraw from high-dividend sectors such as utilities.

"What remains is a stock market that relies more heavily on artificial intelligence to drive growth," Mayfield said. "This makes the market more vulnerable and more sensitive to any cracks in the AI narrative."

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