U.S. Treasury Yields Hit 5% Amid Rising Fiscal Worries
U.S. Treasury yields surged to 5% on Monday as investor concerns grew over the country’s fiscal health, following the approval of a major tax and spending bill and a credit rating downgrade.
Bond Yields Spike on Fiscal Uncertainty
The yield on 30-year U.S. Treasury bonds rose by 0.06 percentage points during Asian trading hours, reaching 5%, the highest level since April 9. The sharp increase was driven by fears of increased government borrowing and inflation, following recent developments in Washington.
These concerns were intensified by:
- Moody’s downgrade of the U.S.’s sovereign credit rating on Friday, citing a rising national debt and widening budget deficit.
- The passage of Donald Trump’s massive tax and budget bill through a key Congressional committee on Sunday evening.
Market Reaction: Sell-Off in U.S. Assets
The fiscal uncertainty triggered a sell-off in U.S. financial markets:
- S&P 500 futures dropped 1%.
- Nasdaq futures fell 1.3%.
- Gold prices rose 0.5% to $3,216 per troy ounce.
- The U.S. dollar weakened 0.3% against a basket of major currencies.
“The bill is helping drive up the long end,” said Subadra Rajappa, head of U.S. rates strategy at Société Générale. “It’s consistent with the market reaction, though hard to prove beyond price action.”
Trump’s Tax Plan Fuels Budget Deficit Fears
Trump’s bill includes hundreds of billions in tax cuts, without corresponding reductions in government spending. Economists warn it could significantly increase the federal deficit, which already stood at 6.4% of GDP in 2024—a level many experts view as unsustainable in the long term.
A larger deficit typically means more Treasury bonds hitting the market, which pushes bond prices down and yields up. Investors are also bracing for higher inflation triggered by the stimulus effect of the tax cuts.
Despite opposition from five Republican lawmakers who initially blocked the bill on Friday, it passed a budget committee vote on Sunday after Trump urged unity within the GOP. On social media, he wrote:
“Republicans MUST UNITE behind, ‘THE ONE, BIG BEAUTIFUL BILL!’ … STOP TALKING, AND GET IT DONE!”
Debt Impact Could Be Massive
While the administration argues that the tax cuts will spur economic growth, boost revenues, and eventually shrink the deficit, independent projections are more cautious.
The Committee for a Responsible Federal Budget estimates the plan could add up to $5.2 trillion to the national debt over the next decade.