[Good Morning Market] New York Stocks Plunge on Surging Treasury Yields... Domestic Market Expected to Remain Cautious

Poor Demand at U.S. 20-Year Treasury Auction
Yields Surge to Highest Level Since October 2023

All three major New York stock indexes plunged on the 21st (local time). Investor sentiment was dampened as concerns grew that the tax cut bill being pushed by the Republican Party could lead to an expansion of the U.S. fiscal deficit, and as Treasury yields surged. The domestic stock market is expected to remain in a wait-and-see mode due to these developments.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 41,860.44, down 816.80 points (1.91%) from the previous session. The Standard & Poor's (S&P) 500 Index fell by 95.85 points (1.61%) to 5,844.61, and the Nasdaq Composite Index ended the session at 18,872.64, down 270.07 points (1.41%).

New York Stock Exchange. Reuters Yonhap News

The New York stock market, which had been calm after the opening, began to plummet following the results of the U.S. 20-year Treasury bond auction held at 1 p.m. The 20-year bond auction was the first such auction since Moody's, the international credit rating agency, downgraded the U.S. credit rating. As a result, Wall Street was closely watching the event to see whether there would be any lingering effects from the downgrade.

At the 20-year bond auction conducted by the U.S. Treasury Department for $16 billion, the yield was set at 5.047%. This was a sharp increase of 23.7 basis points (1bp=0.01 percentage point) compared to the 4.810% at last month's auction, marking the highest level since October 2023. The yield was also 1.2 basis points higher than the pre-auction trading rate.

Amid lingering effects from Moody's downgrade of the U.S. sovereign credit rating, selling pressure on U.S. Treasuries intensified as President Trump pressured hardline Republicans to pass the tax cut bill in Congress, and as the likelihood of the bill's passage increased, fueling concerns over an expanding fiscal deficit.

Due to the sharp rise in Treasury yields, most major stocks ended lower. The 'Magnificent 7' big tech companies all fell except Alphabet. Apple (-2.31%), Amazon (-1.45%), Nvidia (-1.92%), Microsoft (-1.22%), and Tesla (-2.68%) all posted declines.

By industry, all sectors except communication services slumped. Financials, healthcare, and real estate each plunged by more than 2%.

The domestic stock market is expected to remain in a wait-and-see mode. Lee Sunghoon, a researcher at Kiwoom Securities, said, "The domestic stock market is expected to start slightly weaker at the opening due to the decline in the U.S. market," adding, "However, in the absence of a clear directional trend for the index, a differentiated market is likely to continue, centered on sectors with individual momentum."

Kim Jiwon, a researcher at KB Securities, said, "The burden of tariff-induced inflation remains, so selling pressure is expected in the domestic market," and added, "With rising pressures from interest rates and exchange rates, and a lack of market-driving momentum, a wait-and-see approach seems inevitable."