Oil prices plunged 5%, giving Besent some breathing room for bond yields, but structural pressures remain unresolved.

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Softening oil prices have pushed U.S. Treasury yields down, but this is not the substantial repricing U.S. Treasury Secretary Bessent hopes to see.

According to Wallstreetcn, near the close of U.S. equities trading on Tuesday the 25th ET, Russian media Sputnik, citing sources from the Pakistani military and Iranian security agencies, reported that the U.S. and Iran have reached a consensus on the terms of a ceasefire agreement, including free passage through the Strait of Hormuz.

After the news broke, international crude oil futures fell sharply. U.S. WTI crude oil futures dropped more than 5% during the session, while Brent crude oil futures at one point fell roughly 6% from Monday’s close.

Meanwhile, the 10-year U.S. Treasury yield fell by 6 basis points to 4.64%, remaining within a fixed range for the past five weeks and struggling to break out. This makes the overnight yield drop look more like a technical adjustment within the range, far from the structural decline that Bessent hopes to see.

Currently, the market’s focus has shifted to the upcoming Jackson Hole Symposium in search of the next directional signal. Meanwhile, U.S. Treasury supply pressures persist, with a $70 billion 5-year Treasury auction scheduled for this Wednesday.

Structural Pressure Limits Downside for Long-Term Yields

The inflation-mitigating effect of cheap crude oil is hard to offset the deeper factors driving long-term yields higher.

Inflation is still running above policy targets, sovereign bond supply remains elevated, and the current policy mix overall still favors strong nominal growth.

These factors together have formed a high threshold for continued declines in long-term yields, and are the central obstacle to the structural downturn in yields that Bessent is seeking. Against this backdrop, the term premium remains an unavoidable challenge for the bond market.

Before the peak of Treasury issuance in September, the market still needs to absorb a considerable scale of supply. This Wednesday will see a $70 billion 5-year Treasury auction, adding to the recent dense supply schedule.

At present, the overall momentum in the Treasury market remains steady, but the 10-year yield is largely unchanged from most of the past month and remains in a holding pattern.

The Jackson Hole Symposium is widely seen by the market as the next major window that could provide directional guidance.

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