Rising Treasury yields reasserted themselves as the dominant cross asset driver, unwinding much of Wednesday’s relief rally that followed the Treasury Department’s buyback announcement. Traders read the expanded long dated buybacks as potentially inflationary given already ample dollar liquidity, sending yields back up the curve and pressuring risk assets. Crude added to the squeeze, with Brent settling near 93 dollars a barrel, a level not seen in months, as the standoff between Washington and Tehran over the Strait of Hormuz showed no sign of easing. Equity weakness was broad based rather than concentrated, hitting financials, retail and technology names alike, though Walmart’s earnings miss and softness in AI linked hyperscalers gave the selloff extra momentum in specific pockets.
—
Yields, oil and a Walmart earnings miss combined to end Wall Street’s brief relief rally.
Summary:
- S&P 500 closed down 64.33 points, or 0.83 percent, at 7,643.65
- Nasdaq Composite closed down 272.67 points, or 1.04 percent, at 26,058.42
- Dow Jones Industrial Average closed down 693.04 points, or 1.30 percent, at 52,770.01
- Treasury yields rose back across the curve after Wednesday’s buyback driven rally, with the 30 year having touched a near 19 year high around 5.34 percent earlier in the week
- Brent crude rose to about 93 dollars a barrel, up over 1.5 percent, as the US and Iran remained at an impasse over the Strait of Hormuz
- Walmart shares sank around 8 percent, their sharpest single session drop in four years, after second quarter sales missed expectations, while AI hyperscalers were broadly softer following tepid OpenAI results
Wall Street closed sharply lower on Thursday, snapping a brief rebound as Treasury yields reversed higher and rising oil prices added fresh pressure to an already jittery market. The S&P 500 fell 64.33 points, or 0.83 percent, to close at 7,643.65. The Nasdaq Composite dropped 272.67 points, or 1.04 percent, to 26,058.42, while the Dow Jones Industrial Average shed 693.04 points, or 1.30 percent, to finish at 52,770.01.The session unwound much of the optimism generated a day earlier by the Treasury Department’s announcement that it would more than double its buyback operations covering 10, 20 and 30 year debt. Traders instead grew concerned that the expanded buybacks of longer dated securities could worsen an already inflationary backdrop given ample dollar liquidity, sending yields higher across the curve. The 10 year yield had touched a 20 month high of 4.75 percent earlier in the week before easing, while the 30 year yield fell back below 5.2 percent after hitting a 19 year high near 5.34 percent.
More on this here from yesterday:
- Gold’s oversized reaction to Treasury buyback reflects debasement trade
- A radical Bessent, panicking with big Treasury bond buyback move, craters the dollar
- US Treasury is increasing the size of liquidity support buyback operations for longer-dated securities
- ICYMI – HUGE news: US Treasury’s giant bond buyback boost sinks dollar, lifts stocks
- Deutsche Bank sees 4 reasons Treasury buyback move is dollar negative (ps. Fed hike too?)
- Bessent’s panic move risks reigniting rate hike bets, hands Fed hawks new ammunition
Energy markets added to the pressure. Brent crude rose toward 93 dollars a barrel, up 1.52 percent on the day and more than 4 percent for the week, as heightened uncertainty in the Middle East kept a premium in the market. Borrowing costs were also lifted by higher fuel and gas prices after President Trump said the United States had entered economic war against Iran, prolonging blockades of tankers crossing the Persian Gulf. Individual stocks compounded the broader macro pressure. Walmart sank roughly 8 percent, its sharpest single session decline in four years, after second quarter sales fell short of expectations, while banks including JPMorgan and Wells Fargo also weakened as short dated Treasury securities sold off. AI hyperscalers were mostly lower after OpenAI’s results were viewed as tepid relative to the pace of growth at rival Anthropic. The moves cap a volatile stretch so far this week for US equities in which Middle East tensions, a surging term premium on government debt and mixed corporate earnings have repeatedly whipsawed sentiment. With the standoff between Washington and Tehran over the Strait of Hormuz still unresolved and bond markets continuing to digest the scale of the Treasury’s intervention, traders are likely to remain on edge heading into Friday and then next week.
This article was written by Eamonn Sheridan at investinglive.com.