Subscribe now to receive exclusive insights from the White House Watch newsletter
Stay informed on the impact of Trump’s second term on Washington, business, and the global landscape
US government bonds and stocks experienced a decline following a lackluster Treasury auction that underscored investor concerns about the country’s escalating debt burden. This comes as Donald Trump pushes for significant tax cuts to be approved by Congress.
The 30-year Treasury yield rose by 0.11 percentage points to 5.096 per cent in evening trading in New York, reaching its highest level since late 2023, as bond prices fell. The S&P 500 share index also dropped by 1.6 per cent.
Investor unease was further fueled as Republican leaders in Congress engaged in intense discussions to advance President Trump’s tax legislation for a vote in the House. The proposed tax bill, labeled a “big, beautiful bill” by Trump, aims to extend tax cuts implemented during his first term in 2017 and is projected to increase US debt by at least $3 trillion over the next decade according to independent analysts.
Despite House Speaker Mike Johnson expressing optimism about bringing the bill to a vote in the chamber after resolving issues with state tax deductions, fiscal conservatives voiced opposition, advocating for more significant cuts to healthcare and clean-energy spending.
The White House addressed concerns raised by the far-right Freedom Caucus and sought to reassure other Republicans through meetings with National Economic Council director Kevin Hassett at the Capitol.
Moody’s recent downgrade of the US credit rating due to rising debt and deficits added to the market’s apprehension. The US conducted a $16 billion auction for 20-year Treasuries with a 5 per cent coupon, resulting in the highest interest rate for such bonds at auction since their reintroduction in 2020.
Market analysts highlighted the market’s preference for shorter durations amidst the focus on the budget deficit, with expectations of heightened scrutiny on long-end auctions, particularly in light of the budget bill.
As the equity market began to acknowledge the fiscal challenges impacting the Treasury market, over 95 per cent of S&P 500 stocks closed in the red, with financials, real estate, and healthcare sectors being the worst performers.
Additionally, a sell-off in Big Tech stocks ensued following news of ChatGPT maker OpenAI’s acquisition of io, a hardware start-up founded by former Apple design chief Sir Jony Ive, for $6.4 billion. This move by OpenAI signals a shift towards alternatives to smartphones.
Amidst these developments, the dollar index, which tracks the US currency against a basket of peers, declined by 0.6 per cent.