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US government bonds and stocks have experienced a decline following a weak Treasury auction that highlighted investor concerns over the country’s increasing debt burden. This comes as President Donald Trump pushes for sweeping tax cuts through Congress.
The 30-year Treasury yield saw an increase of 0.11 percentage points to 5.096 per cent in evening trading in New York, reaching its highest level since late 2023. The price of bonds fell as a result, contributing to a multi-day rise in longer-dated Treasuries. The S&P 500 share index also fell by 1.6 per cent.
Republican leadership in Congress has been engaged in intense discussions to move forward with the president’s tax legislation, which is projected to add at least $3 trillion to the US debt over the next decade. House Speaker Mike Johnson expressed optimism about bringing the bill to a vote in the chamber after reaching an agreement with party holdouts on state tax deductions. However, fiscal conservatives are advocating for deeper cuts to healthcare programs and clean-energy tax credits.
In response to these concerns, the White House met with the far-right Freedom Caucus and sent National Economic Council director Kevin Hassett to engage with other Republicans in Congress. Press secretary Karoline Leavitt described the meeting as productive and moving in the right direction.
Moody’s recent decision to downgrade the US credit rating due to rising debt and deficits has added to the market unease. The US recently conducted a $16 billion auction on 20-year Treasuries with a 5 per cent coupon, resulting in the highest interest rate for 20-year bonds at auction since 2020.
Market experts have noted a bias towards higher yields in light of the budget deficit concerns. The equity market is also starting to take notice of the fiscal issues facing the Treasury market, with more than 95 per cent of S&P 500 member stocks showing negative performance.
In addition to the Treasury auction fallout, Big Tech stocks experienced a sell-off after news broke that ChatGPT maker OpenAI had agreed to acquire former Apple design chief Sir Jony Ive’s hardware start-up io for $6.4 billion. This further contributed to the decline in Apple, Amazon, Nvidia, and Microsoft stocks. The tech-heavy Nasdaq Composite also saw a 1.4 per cent decrease.
The dollar index, which tracks the US currency against a basket of peers, was down by 0.6 per cent amidst the market turbulence.
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