30-Year U.S. Treasury Yield Surges Past 5% Again
Highest Level Since Late October 2023
10-Year Yield Climbs Back Above 4.5%
Trump Pressures for Tax Cut Bill
Moody's Downgrade Fuels Fiscal Deficit Concerns
Yields on U.S. Treasury bonds are surging, especially for long-term maturities. The yield on the 30-year Treasury has once again surpassed 5%, while the 10-year yield has climbed back above 4.5%. After global credit rating agency Moody's downgraded the U.S. sovereign credit rating, President Donald Trump pressured the Republican Party to push through a tax cut plan. As fears of a worsening fiscal deficit grew, signs of a sell-off emerged in U.S. Treasuries, which are typically considered the world's safest assets.
As concerns over debt and fiscal issues lead investors to withdraw their trust in the "fortress-like" U.S. economy, there are growing worries on Wall Street that Treasury yields could rise even further for some time.
According to the global bond market on May 21 (local time), the yield on the 30-year U.S. Treasury stood at 5.08% as of 5:05 p.m. Eastern Time, up 11 basis points (1bp = 0.01 percentage point) from the previous trading day. This is the highest level since the end of October 2023. The benchmark 10-year Treasury yield, which serves as a global reference, was also up 11 basis points from the previous day, hovering around 4.59%.
As investors sell off U.S. Treasuries, especially in longer maturities, yields?which move inversely to bond prices?are soaring.
The trigger for the surge in Treasury yields was President Trump's push for a massive tax cut plan, which is expected to further worsen the fiscal deficit, with the backing of the Republican Party. The previous day, President Trump met with Republican lawmakers and pressured them to pass a "mega bill" that includes major campaign promises such as tax cuts and increased border security funding. He warned some Republican lawmakers who opposed the bill that they would be "removed" in the next election. The problem is that if the bill passes, according to estimates from key institutions such as the Congressional Budget Office (CBO) and Moody's, federal tax revenue would decrease by at least $3 trillion. The CBO projects that the bill would increase the federal deficit by $3.8 trillion over the next 10 years. As Republican leaders narrowed internal disagreements and decided to bring the bill to a House vote that night, concerns over the fiscal deficit have intensified.
There is also weak investor demand to absorb the supply of U.S. Treasuries. The U.S. Treasury held an auction for $16 billion in 20-year bonds that day. The auction was poorly received, with the winning yield at 5.047%?the highest since 2020 and 46 basis points above the six-month average of 4.613%. The combination of worsening fiscal deficit expectations and poor Treasury auctions has caused yields to spike to what some describe as a "panic" level.
This is being interpreted as a warning from the market that even a reserve currency country like the U.S. cannot expand its national debt without limit. The surge in Treasury yields, a barometer of confidence in the U.S. economy, signals that investors' strong faith in the country's medium- to long-term economic outlook is being shaken. Some analysts suggest that the so-called "bond vigilantes"?investors who sell off government bonds to punish fiscal or monetary policy missteps or signs of inflation?are now actively moving.
The sharp rise in U.S. Treasury yields could cause significant turmoil in global financial markets and economies. In particular, the 10-year Treasury yield serves as the benchmark for all borrowing costs, from mortgages to corporate loans, making it a highly sensitive indicator for both households and businesses. Stock market volatility has also increased. As Treasury yields soared, investor sentiment in equities weakened, causing all three major New York stock indexes to plunge by nearly 2% that day.
On Wall Street, there are growing projections that U.S. Treasury yields could rise further for some time. This is because if President Trump's tax cut plan is passed by Congress under Republican leadership, the fiscal deficit is likely to worsen even more. President Trump has proposed offsetting the lost revenue by cutting government spending and increasing tariff income, but most experts argue that this plan lacks realism. Additionally, if tariff-induced inflation occurs, the high interest rate environment could persist for longer, pushing Treasury yields even higher.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said regarding bond yields, "The key issue is skepticism about fiscal matters," adding, "The future trend is clearly higher." Sam Stovall, chief investment strategist at CFRA Research, pointed out, "Investors are concerned that we are taking no action to slow inflation and reduce debt."
Steven Mnuchin, who served as Treasury Secretary during the first Trump administration, urged that reducing the fiscal deficit is an urgent priority. Speaking at the Qatar Economic Forum, Mnuchin emphasized, "The budget deficit is a bigger problem than the trade deficit," and added, "We need to cut government spending further. This is a very important issue."
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