U.S. stocks fell sharply on Thursday as Treasury yields climbed again, oil prices pushed higher and a rare sales disappointment from Walmart added to fears that consumers may be losing momentum.
The reversal came just one day after the U.S. Treasury announced it would double the size of its purchases of longer-dated government bonds, a move that initially sent bond yields lower and offered markets a much-needed dose of relief.
That relief did not last.
The yield on the benchmark 30-year U.S. Treasury bond climbed about 5.4 basis points to 5.247% on Thursday, after briefly falling as low as 5.1765%. The 10-year yield also moved higher, returning toward 4.7%. Because bond prices and yields move in opposite directions, the rebound in yields signaled renewed selling pressure in long-term U.S. debt.
The stock market responded accordingly. The S&P 500 fell 0.9%, the Nasdaq Composite dropped 1%, and the Dow Jones Industrial Average declined roughly 1.3%, leaving the major U.S. indexes at or near two-week lows.
Treasury’s bond-market rescue meets a tougher test
The Treasury’s surprise intervention on Wednesday was designed to provide additional liquidity to the long end of the government bond market.
The department increased the maximum size of planned buybacks of Treasury securities with maturities between 10 and 30 years from $2 billion to $4 billion per operation, with the larger purchases scheduled to begin in September.
Treasury Secretary Scott Bessent subsequently signaled that the purchases could become even larger, saying the government has a broader set of tools available if pressure on long-term yields persists.
But investors are questioning whether buybacks can address the forces driving yields higher in the first place.
The United States’ federal debt has now surpassed $40 trillion, while elevated inflation, large fiscal deficits and heavy borrowing needs continue to weigh on the long end of the Treasury market. The Council on Foreign Relations similarly cautioned that efforts to suppress government bond yields are unlikely to provide a durable solution without changes to underlying fiscal or economic conditions.
That is the central dilemma facing policymakers: Treasury can influence the bond market, but it cannot simply buy away the fundamentals investors are worried about.
Oil adds another inflation problem
The bond-market pressure is being amplified by higher oil prices.
Brent crude climbed above $93 a barrel on Thursday, with continuing uncertainty surrounding the Middle East and energy supplies adding another inflationary risk to the market. Higher energy prices can feed directly into transportation, manufacturing and consumer costs, potentially making it harder for central banks to ease monetary policy.
That matters because investors are already reassessing the Federal Reserve’s next move.
September Fed rate hike is not dead
Minutes from the Federal Reserve’s latest meeting showed that a September rate increase remains possible if inflation stays too high.
While softer inflation and employment data have reduced the likelihood of a near-term hike, several policymakers indicated they would be prepared to raise rates again if inflation fails to move sustainably toward the Fed’s 2% target.
Reuters reported that markets were assigning roughly a 35% probability to a September rate hike at the time of the analysis, although that pricing could prove too low if energy prices continue to rise and reignite inflation pressure.
That creates an uncomfortable combination for investors: higher oil prices, elevated long-term bond yields and the possibility that interest rates may stay higher for longer.
Walmart delivers another warning
The pressure was not limited to bonds and commodities.
Walmart shares plunged roughly 9% after the world’s largest traditional retailer reported its slowest quarterly comparable-sales growth in six years, according to Reuters.
The result raised fresh questions about the resilience of U.S. consumers, particularly as higher gasoline prices squeeze household budgets. Walmart’s weakness also dragged on consumer-related sectors of the S&P 500.
That makes the market’s latest selloff more significant than a simple reaction to Treasury yields.
Investors are simultaneously confronting expensive borrowing, renewed inflation risks and signs that consumers may be becoming more cautious.
Japan could add another twist
The pressure is not confined to the United States.
Japan’s core consumer inflation accelerated in July, strengthening the case for the Bank of Japan to consider another interest-rate increase. Core CPI rose 1.8% year-on-year, while inflation excluding fresh food and fuel reached 1.9%.
Markets are watching Japan closely because higher Japanese interest rates could influence global bond flows and the yen, potentially adding another source of volatility to already unsettled international markets.
The bigger question
For now, the Treasury has demonstrated that it can produce a short-term shock of relief.
What investors have not yet seen is evidence that it can deliver lasting relief.
The sharp reversal in Treasury yields one day after the buyback announcement suggests markets remain focused on the deeper issues: America’s enormous borrowing requirements, persistent inflation risks, rising energy costs and the uncertain path of Federal Reserve policy.
The warning from Thursday’s trading session is therefore difficult to ignore.
The bond market may not be asking whether the Treasury can buy more bonds. It may be asking whether the underlying fiscal and inflation pressures are simply too large for intervention to overcome.
And if long-term yields keep climbing, Wall Street may discover that the latest selloff was not the end of the story — but the beginning of a much bigger test for U.S. markets.
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