Stocks and bonds dropped on Wednesday after a Treasury auction was met with weak demand.
The 10- and the 30-year bond yields spiked higher after jumping earlier in the day on deficit fears.
The tepid bond sale adds to concerns that the US fiscal picture could worsen.
Stocks tumbled and bond yields spiked on Wednesday after a weak US government bond auction rattled investors and added to concerns about America’s fiscal situation.
A $16 billion auction of 20-year Treasurys was met with weak demand. The US sold the bonds at a rate over 5%, the highest rate on the 20-year since 2020, according to Bloomberg.
The 10-year yield spiked 11 basis points to 4.595%, and the 30-year also rose 12 basis points to 5.089%.
The surge in yields sent stocks tumbling later in the trading session
Here’s where major US indexes stood at the 4 p.m. ET closing bell on Wednesday:
S&P 500: 5,844.61, down 1.61%
Dow Jones Industrial Average: 41,860.44, down 1.91% (-816.80 points)
Nasdaq Composite: 18,872.64, down 1.41%
A sell-off in bonds had resumed earlier in the day after pausing on Tuesday, as chatter over the US budget and the House GOP tax bill fueled more concerns about the deficit.
Bond yields, which move inversely to prices, climbed earlier on Wednesday as traders surveyed the outlook for the US fiscal situation. A sweeping fiscal package that’s moving through Congress has been inching forward, driving renewed fears that the US could see trillions added to the deficit in the next 10 years.
Investors have grown anxious in the last few days about the Republicans’ tax bill winding its way through Congress. Worries are growing about the long-term trajectory of the US deficit, which economists have warned about for years.
The tax bill in its current form could add nearly $4 trillion to the national debt balance over the next decade, according to a projection from the Tax Foundation.
Bond vigilantes — investors who protest policy by selling bonds and driving yields higher — are homing in on the tax bill given its impact on the safety and sustainability of US debt, according to Ed Yardeni, a market veteran and the president of Yardeni Research.
“I think the perception is we really risk trouble if Washington doesn’t do something more meaningful about narrowing the deficit,” Yardeni told Business Insider in an interview last week, speculating that the 10-year yield could rise as high as 5%. “The administration is recognizing that the bond market, that the bond vigilantes are a force to be reckoned with,” he added.
“The bond vigilantes continue to lurk,” Michael Brown, a senior research strategist at Pepperstone, wrote in a note on Wednesday. “Clearly, President Trump somewhat laughably claiming to be a ‘fiscal hawk’ while also trying to pass a $5tln tax cut hasn’t exactly reassured market participants.”
Bonds have been on a roller coaster this year on fears about tariffs, inflation, and America’s fiscal situation.
The yield on the 10-year US Treasury edged close to 5% in the weeks before Trump’s inauguration, partly because investors were anticipating the inflationary impact of some of the president’s proposed policies.
Since then, yields have whipsawed, with notable spikes occurring when the president announced his April 2 tariffs and when Moody’s downgraded the US’s debt rating last Friday, adding to concerns over the government’s ability to keep borrowing at high levels.
President Donald Trump’s team has suggested he’s keeping an eye on the bond market this year, particularly the 10-year US Treasury yield, which is an indication of long-term interest rates in the economy.
The bond market got credit for helping to rein in the president’s tariff policy in the early days of this trade war last month, with Trump pausing most tariffs for 90 days after a sharp sell-off that sent yields spiraling higher.
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