30-year U.S. Treasury yield surpasses 5% again
Highest level since late October 2023
10-year yield climbs back above 4.5%
Pressure from Trump’s tax cut push
Fiscal deficit concerns rise after Moody’s U.S. credit downgrade
Yields on U.S. Treasury bonds are surging, particularly among long-term maturities. The 30-year Treasury yield has once again surpassed 5%, while the 10-year yield has climbed back above 4.5%. Following the downgrade of the U.S. sovereign credit rating by global credit rating agency Moody's, concerns over worsening fiscal deficits have intensified as President Donald Trump pushes for tax cuts, leading to signs of a sell-off in U.S. Treasuries.
According to the global bond market on May 21 (local time), the yield on the 30-year U.S. Treasury stood at 5.07% as of 3:29 p.m. Eastern Time, up 11 basis points (1bp = 0.01 percentage point) from the previous trading day. This is the highest level since late October 2023. The yield on the 10-year U.S. Treasury, which serves as a global benchmark, rose by 10 basis points from the previous day, trading around 4.58%.
As investors are selling U.S. Treasuries, especially long-term bonds, yields?which move inversely to bond prices?are rising sharply.
The trigger was President Trump's push for a large-scale tax cut plan, led by the Republican Party, which is expected to further worsen the fiscal deficit. The previous day, President Trump met with Republican lawmakers and pressed for the passage of a "mega bill" that includes key pledges such as tax cuts and increased border security funding. He warned some Republican lawmakers who oppose the bill that they would be "removed" in the next election. The issue is that if this bill passes, the resulting reduction in tax revenue is estimated by major institutions such as the Congressional Budget Office (CBO) and Moody's to be at least $3 trillion. As the Republican leadership narrowed internal disagreements and decided to put the bill to a House vote later that night, concerns over a worsening fiscal deficit have grown even more intense.
In addition, investor demand for U.S. Treasuries remains sluggish. On this day, the U.S. Treasury Department held an auction for $16 billion in 20-year bonds. Due to weak investor demand, the winning yield for this auction was set at 5.047%, the highest since 2020. This is 46 basis points higher than the six-month average of 4.613%. The combination of fiscal deficit concerns and weak Treasury auctions is driving yields even higher.
In particular, the yield on the 10-year U.S. Treasury serves as the benchmark for all borrowing costs, from mortgages to corporate loans, so a rise in the 10-year yield places a significant burden on not only the U.S. economy but also the global economy.
Sam Stovall, Chief Investment Strategist at CFRA Research, stated, "From a fiscal perspective, the important questions right now are what this tax law will look like and whether it will simply slow the pace of debt accumulation, thereby derailing fiscal tightening in a potential second Trump term." He added, "Investors are concerned that we are taking no action to slow inflation and reduce debt, which is why the yield on the 10-year U.S. Treasury is rising."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
