Bond yields dropped on Wednesday from a 19-year high a day earlier, following plans issued by the Trump administration for a significant increase in the amount of debt to be repurchased by the Treasury Department.
The move promised a boost in demand for U.S. debt, relieving a selloff that took hold as investors fled treasuries in fear of persistent inflation amid an ongoing standoff between the United States and Iran.
The 30-year Treasury yield registered at 5.20% on Wednesday morning, after reaching as high as 5.33% a day prior. Yields also declined for the 10-year Treasury note, which helps set mortgage and credit card rates.
Major stock indexes were mixed in response to the relief for yields. The Dow Jones Industrial Average climbed 245 points, or 0.4%, while the S&P 500 jumped 0.3%. The tech-heavy Nasdaq ticked down 0.1%.
Since bonds pay a given investor a fixed amount each year, the specter of inflation risks higher consumer prices that would eat away at those annual payouts. As a result, investors tend to sell off bonds if they fear a prolonged bout of inflation. A decline in demand for U.S. debt pushes bond prices lower and yields higher.
On Wednesday, the Treasury Department said it would "at least double" its buyback operations for long-term debt. The announcement amounted to a commitment of additional demand for U.S. treasuries, which in turn raised bond prices and eased yields.
The decline in yields may lower mortgage and credit card rates, since long-term bond yields influence interest payments for various consumer loans.
Still, long-term inflation remains a concern among some investors.
A global oil shock has pushed up energy prices which in turn has trickled into other costs, such as groceries.
Global oil prices ticked above $91.50 a barrel on Tuesday, up nearly 30% since the outbreak of the Iran war in late February. The average price of a gallon of gas is $4.08, putting it well above an average of $2.98 before the war, AAA data showed.
Iran’s near-closure of the Strait of Hormuz choked off a trade route responsible for about 20% of global oil supply. A U.S. blockade of Iranian ships deepened the crude shortage. On-again, off-again negotiations have failed to restore tanker tariff in the strait.
An average of about 13 ships crossed the strait each day last week, oil data company Kpler said in a post on X, down from more than 100 ships per day before the recent conflict.
Inflation, in turn, has stayed elevated. Prices rose 3.4% in July compared to a year earlier, marking a slight cooldown from the prior month, federal government data last week showed.
Still, inflation stands more than a percentage point higher than the Federal Reserve's target rate of 2%.
The Fed, meanwhile, has opted against imposing interest rate hikes in response to the oil-driven rise in prices. The central bank could hike rates in an effort to cool off prices, but the move risks an economic slowdown that may pinch hiring.
Fed Chair Kevin Warsh, who took the helm of the central bank this summer, has repeatedly vowed to dial back inflation.
"The committee remains resolute -- you’ve heard this before -- that we will deliver price stability," Warsh told reporters in Washington, D.C., last month.
Investors, however, appear skeptical of the central bank's willingness to urgently increase rates.
Odds of a quarter-point rate hike at the Fed's next meeting in September stand at 34%, according to the CME Group's FedWatch Tool, a measure of market sentiment.