US Treasury yields extended their downward trajectory for a second consecutive session on Tuesday (August 25), with the 2-year yield falling 6.39 basis points to 4.170%, the 3-year yield dropping 6.23 basis points to 4.238%, the 5-year yield declining 6.94 basis points to 4.332%, the 10-year yield slipping 7.13 basis points to 4.625%, and the 30-year yield easing 6.05 basis points to 5.164% at the close.
Industry experts attribute the sustained decline in Treasury yields to a dual force: the continued unwinding of geopolitical risk premiums and weak signals from US economic data. On the energy front, international oil prices plunged more than 3% on Tuesday, hitting their lowest levels in over a week. Brent crude futures fell $3.59, or 3.9%, to settle at $88.58 per barrel, marking the lowest close since August 14, while WTI crude futures dropped $2.65, or 3.1%, to $82.36 per barrel, the lowest since August 13.
The oil price slump was driven by a pivotal geopolitical shift. US Treasury Secretary Bessent announced an expansion of economic sanctions against Iran, planning to impose harsher secondary sanctions on companies and nations that continue commercial dealings with Tehran. Ole Hansen, head of commodity strategy at Saxo Bank, noted that the focus of geopolitical conflict has shifted from military confrontation to economic pressure, reducing market anxiety over an immediate further disruption to crude supply.
Fundamental economic data also supported the yield decline. The latest figures showed the August consumer confidence index fell 0.8 points to 89.4, missing the market consensus of 90.2 and marking the lowest level since January. The expectations index, reflecting the six-month outlook, dropped to its lowest point since January, sliding further into pessimistic territory, with surveys indicating deteriorating consumer views on future job and income prospects. Housing data proved equally weak, as US new home sales fell 10.5% month-over-month in July, reversing June's upwardly revised 7.6% gain, down 6.3% year-over-year, with the seasonally adjusted annual rate dropping to 607,000 units.
The slide in consumer confidence and the sharp drop in new home sales reinforced market perceptions of slowing US economic momentum, weighing on expectations for further Federal Reserve rate hikes. On the monetary policy front, recent comments from Fed officials struck a dovish tone. New York Fed President Williams stated, "If inflation follows the path I expect, it will ultimately be necessary to further reduce the federal funds rate to prevent monetary policy from inadvertently becoming overly restrictive." As the Fed's third-highest-ranking official with a permanent vote, Williams' remarks are viewed as a key policy signal. Minneapolis Fed President Kashkari also downplayed market concerns over rising Treasury yields on Sunday, stating that markets are functioning well.
Major institutions remain divided on the outlook ahead. Mabrouk Chetouana, global market strategy head at Natixis Investment Managers, suggested that Fed Chair Warsh's speech at Jackson Hole could mirror the tone of the previous two FOMC meetings, noting, "This year's symposium address has the potential to disappoint markets, and could even exacerbate volatility in the long-end yield curve, which is already under significant pressure."
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