US Treasury yields pulled back from their highest level since 2002 as oil prices fell below $100 per barrel and Treasury Secretary Scott Bessent maintained that the government's debt burden remains manageable.

Bessent sought to reassure investors, saying that a combination of economic growth and spending restraint would begin to alter the government's borrowing trajectory "very quickly." Speaking during a fireside chat in Pennsylvania on Monday evening, he stated that the administration would begin to reverse this trend.

The 10-year Treasury yield declined 2 basis points to 5.28%, while the 2-year yield also dropped about 2 basis points to 4.8%. On Tuesday, crude oil prices retreated as signs emerged that more supply was flowing through the Strait of Hormuz.

Concerns about the US fiscal path have kept investors on edge. Ray Dalio, founder of Bridgewater Associates, warned that the US is approaching the limits of its debt cycle and could face a crisis within the next three years if spending continues to outpace revenue. He noted that US Treasuries are also vulnerable to declining demand from China and Japan.

However, investors are skeptical about whether Bessent can significantly ease fiscal pressure in the near term and are reluctant to conclude that the bond selloff has ended. Gareth Berry, a strategist at Macquarie, said: "Given that the deficit is 6% of GDP and there are no plans to reduce it, the market will likely be very doubtful of their commitments."

Strategist Skylar Montgomery Koning's view: Dovish data over the past week has reduced the likelihood of an October rate hike, but the data itself is not weak. The US economy remains resilient in a high-yield environment, and financial conditions remain accommodative. Until there is evidence that rates are genuinely beginning to weigh on the economy, a significant rebound in Treasuries will be difficult.

HSBC strategists also believe that long-term bonds will underperform other maturities, and the bank expects the yield spread between 5-year and 30-year Treasuries to widen further. Dhiraj Narula, HSBC's US rates strategist, wrote in a report: "Given the surge in volatility and the lack of clear technical resistance at these levels based on recent history, many investors are choosing to stay on the sidelines even if they see appeal in long-term government bonds."

These strategists also believe that the market's current pricing of roughly 80 basis points of cumulative Fed rate hikes next year is "overdone."