U.S. Treasuries hover near 2-month lows on 20% weekly oil crash, midterm sweep

U.S. Treasury yields held close to their lowest levels in two months on Thursday, as a staggering 20% weekly collapse in crude oil prices and a decisive Democratic sweep in the midterm elections rapidly drained stagflation fears and deficit anxiety out of the world’s benchmark debt market.

The benchmark 10-year Treasury yield hovered at 4.891%, lingering near its lowest level since early September and sitting roughly 47 basis points below its October peak of 5.36%.

At the long end of the curve, the 30-year Treasury yield matched those early September lows, easing to 5.270% as duration buyers stepped in aggressively.

Front-end yields were more measured, with the policy-sensitive two-year note yield edging slightly higher to 4.604% after pulling back from its lowest mark in two months, reflecting the ongoing tug-of-war between cheapening energy inputs and resilient domestic economic data.

Brent crude futures dived nearly 9% overnight to break below the psychological $100-a-barrel threshold, extending a weekly slide to roughly 20%. If maintained through Friday’s close, the plunge would mark the steepest weekly decline in crude benchmarks since April 2020, when pandemic lockdowns briefly forced oil contracts into negative territory.

That collapse has fundamentally rewritten the macro landscape for fixed-income desks.

Throughout October, soaring energy prices and freight bottlenecks had injected acute inflation anxiety across financial markets, driving bond yields to multi-decade highs and fueling fears that the Federal Reserve would be forced into an aggressive, prolonged monetary tightening campaign.

With oil benchmarks in freefall, the imported cost pressures that had elevated market-based breakeven inflation rates are rapidly dissipating, lifting a heavy tax off corporate balance sheets and giving bond investors confidence that consumer price gains will cool through year-end.

Midterm sweep ignites hopes for U.S.-Iran war off-ramp

The dramatic decompression of energy prices stems directly from Washington, where American voters swept Democrats to a series of stunning midterm victories, wresting full control of Congress from President Donald Trump’s Republicans.

The scale of the Democratic congressional takeover has profoundly altered market assumptions regarding U.S. foreign policy in the Middle East:

Trading desks are calculating that an opposition-controlled House and Senate will actively assert war powers oversight, restricting the White House’s ability to conduct further unilateral military action following defensive strikes against Iranian installations on Qeshm Island earlier this week.

The political shift has revived expectations that Washington and Tehran will now be compelled to lean into Qatari-mediated backchannel diplomacy, sharply diminishing the perceived threat of a wider conflict that could indefinitely shutter tanker transit through the Strait of Hormuz.

Resilient labor data keeps Fed in play

While long-term borrowing costs drifted lower, the front end of the Treasury curve showed distinct resilience, preventing yields from breaking sharply lower.

The two-year yield edged up to 4.604% as dealing desks balanced deflationary energy signals against underlying strength in the U.S. economy.

Recent data revealed that job openings unexpectedly jumped by 333,000 to 7.523 million in September, while private payrolls expanded by 86,000 in October to comfortably surpass market forecasts.

That labor durability has kept expectations for the Federal Reserve’s upcoming December policy meeting firmly hawkish.

Money markets continue to price in an 80% probability that the Fed will raise its federal funds target rate by 25 basis points next month, following last week’s decision to hold borrowing costs at 3.75% to 4.00% amid two hawkish dissents.

With investors awaiting Friday’s official nonfarm payrolls report to confirm the underlying health of domestic employment, short-dated notes held a defensive posture.