Stocks Get Hit as Weak Treasury Sale Boosts Yields
Wall Street’s worries about a ballooning deficit that threatens America’s status as a safe haven were reflected in a $16 billion Treasury sale that saw lackluster demand - with stocks, bonds and the dollar falling.
Treasuries got hit after a weak auction of 20-year bonds, whose 5% coupon rate was the highest since the tenor was reintroduced in 2020. Long-term debt bore the brunt of the selling, with 30-year yields jumping over 10 basis points. The equity market saw its worst session in a month, with the S&P 500’s slide topping 1.5%. The greenback dropped against most major currencies. Bitcoin pared its advance, but was still set for a record.
“The soft 20-year auction fueled additional weakness,” said Michael O’Rourke, chief market strategist at JonesTrading. “It has been a theme all week starting with the Moody’s downgrade. Additionally, there is the deficit/budget debate being fought in the background of this environment.”
Traders have been piling into bets that long-term bond yields would surge on concerns over the US’s swelling debt and deficits, with Moody’s Ratings on Friday lowering the nation’s credit score below the top triple-A level. For many, the message was: Unless America gets its finances in order, the perceived risks of lending to the government will rise.
The White House amped up the pressure on Republicans on Wednesday urging lawmakers to quickly approve President Donald Trump’s signature tax bill, adding that a failure to do so would be the “ultimate betrayal.”
Former US Treasury Secretary Steven Mnuchin said he’s more alarmed by the country’s growing budget deficit than its trade imbalances, and urged Washington to prioritize fiscal repair.
“I’m very concerned,” he said during a panel discussion at the Qatar Economic Forum on Wednesday. “The budget deficit is a larger concern to me than the trade deficit. So I’m on the side of, I hope we do get more spending cuts — something that’s very important.”
The S&P 500 fell 1.6%. The Nasdaq 100 lost 1.3%. The Dow Jones Industrial Average slipped 1.9%.
The yield on 10-year Treasuries rose 10 basis points to 4.59%. A dollar gauge slid 0.3%.
Source : Bloomberg
