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US government bonds and stocks fell after a weak Treasury auction highlighted investor unease over the country’s rising debt burden, as Donald Trump attempts to push sweeping tax cuts through Congress.
The 30-year Treasury yield was up 0.11 percentage points to 5.096 per cent in afternoon trading, the highest level since late 2023, as the price of the bonds fell. Wednesday’s move added to a multi-day rise in longer-dated Treasuries. The S&P 500 share index fell 1.6 per cent.
The fresh bout of selling came as Republican leadership in Congress held intense talks to advance Trump’s tax legislation to a vote in the House. Trump’s proposal, which he has called a “big, beautiful bill”, is forecast by independent analysts to add at least $3tn to US debt over the next decade.
House Speaker Mike Johnson said early on Wednesday that he was hopeful he could bring the bill to a vote in the chamber after striking an agreement with party holdouts over state tax deductions. But the deal drew a backlash from fiscal conservatives, who have lobbied for steeper cuts to spending on healthcare programmes and clean-energy tax credits.
The White House invited the far-right Freedom Caucus to hear their concerns on Wednesday afternoon and dispatched National Economic Council director Kevin Hassett to meet with other Republicans at the Capitol.
The talks come just days after Moody’s stripped the US of its pristine triple A credit rating on concerns over rising debt and deficits.
In a sign of those concerns, the US drew weak demand in a $16bn auction for 20-year Treasuries on Wednesday. The country sold the debt with a 5 per cent coupon, the highest interest rate for 20-year bonds at auction since the maturity was reintroduced in 2020.
Primary dealers — banks that are obliged to sop up any bonds not absorbed by others investors — purchased 16.9 per cent of the offering, compared with an average of 15.1 per cent, according to BMO Capital Markets.
“We had a soft 20-year auction and when combined with the focus on the budget deficit, the market has a bias towards higher yields,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
“Markets really have no appetite for duration here,” added Pooja Kumra, a rates strategist at TD Securities, referring to longer-dated securities.
“Especially in the case of the US, we expect all long-end auctions to be highly scrutinised by markets,” Kumra said, citing the budget bill.
One hedge fund manager who asked not to be named described Wednesday’s Treasury auction as “nasty”.
In equities markets, more than nine in 10 of the S&P 500’s member stocks were negative on the day. The financials, real estate and healthcare sectors were the benchmark index’s worst performers.
Compounding the decline was a sell-off in Big Tech stocks, after ChatGPT maker OpenAI said it had agreed to buy former Apple design chief Sir Jony Ive’s hardware start-up io for $6.4bn. The acquisition extends OpenAI’s bet on alternatives to smartphones.
News of the deal emerged around the same time as the results of the weak Treasury auction. Shares in Apple were down more than 2 per cent, Amazon, Nvidia and Microsoft all fell more than 1 per cent. The tech-heavy Nasdaq Composite was down 1.4 per cent.
The dollar index, tracking the US currency against a basket of peers, was down 0.6 per cent.
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