U.S. stocks and the dollar fell sharply on Wednesday after a weak $16 billion auction of 20-year Treasury bonds. The poor demand triggered a spike in bond yields, raising fresh concerns over the U.S. fiscal outlook.
All three major stock indexes ended the day down more than 1%. The Dow Jones dropped 816.80 points (1.91%) to 41,860.44, the S&P 500 lost 95.85 points (1.61%) to close at 5,844.61, and the Nasdaq slipped 270.07 points (1.41%) to 18,872.64.
The rate of return on the 30-year bond surged to 5.08% after the auction, whereas the yield on the 20-year bond climbed to 5.127%, the highest since November 2023. Amid growing budgetary concerns, investors’ apprehension about holding U.S. government debt was brought to light by the yield spike.
This comes on the heels of a credit rating downgrade by Moody’s, which has intensified scrutiny of America’s $36 trillion debt burden.
Debt, Tax Policy, and Trade Concerns Add Pressure
Markets are also grappling with uncertainty around proposed tax legislation. While former President Trump continues to push for extended tax cuts, many worry they could add another $3 to $5 trillion to the national debt.
Republicans remain divided on the bill’s structure, while concerns over stalled trade negotiations and existing tariffs are further weighing on sentiment.
“There’s no doubt the deficit has grown larger,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder. “We’re in a waiting game on tariffs and don’t yet know if any progress is being made.”
Global Impact: Currency Moves, Oil, and Bitcoin
Global markets reacted with caution. Europe’s STOXX 600 fell 0.04%, while MSCI’s global stock index fell 0.87%. Overall, the dollar declined in the foreign exchange markets.
Following strong inflation figures, the British pound reached its highest level since February 2022, while the euro increased 0.4% to $1.1334.
Furthermore, the Japanese yen appreciated, and after a poor debt auction, 30-year Japanese bond yields reached all-time highs.
After hitting a new peak, Bitcoin leveled off at $108,261.87. Meanwhile, rumors of possible nuclear talks between the United States and Iran, as well as negative inventory data, caused oil prices to fall. WTI closed at $61.57, and Brent was trading at $64.91 per barrel.
Due to the dollar’s weakening, investors sought safe-haven assets, which caused spot gold to rise 0.7% to $3,312.77 an ounce.
