Here's what to know about the bond markets' latest moves
Markets came under pressure Monday as investors dumped stocks, U.S. bonds and the dollar, after the United States lost its triple-A bond rating, signaling new worries about the outlook for the world's largest economy amid President Donald Trump's trade war and heightened federal deficits.
Yields on 10-year and 30-year Treasurys rose sharply, as investors priced in elevated inflation fueled by higher tariffs as well as the likelihood of large, unfunded tax cuts, economists said. The yields on these bonds, which later receded from their highs, are nonetheless important because they influence what millions of consumers and businesses pay to borrow.
'Rising yields on the back of the U.S. credit downgrade is indicative of what will occur if Washington does not curb its appetite for unsustainable spending and low taxes: increasing costs to borrow for both households and businesses,' said Joe Brusuelas, chief economist at RSM.
Here's what to know about the bond market.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
14 minutes ago
Trump's tariffs could pay for his tax cuts -- but it likely wouldn't be much of a bargain
WASHINGTON -- WASHINGTON (AP) — The tax cuts in President Donald Trump's One Big Beautiful Bill Act would likely gouge a hole in the federal budget. The president has a patch handy, though: his sweeping import taxes — tariffs. The Congressional Budget Office, the government's nonpartisan arbiter of tax and spending matters, says the One Big Beautiful Bill, passed by the House last month and now under consideration in the Senate, would increase federal budget deficits by $2.4 trillion over the next decade. That is because its tax cuts would drain the government's coffers faster than its spending cuts would save money. By bringing in revenue for the Treasury, on the other hand, the tariffs that Trump announced through May 13 — including his so-called reciprocal levies of up to 50% on countries with which the United States has a trade deficit — would offset the budget impact of the tax-cut bill and reduce deficits over the next decade by $2.5 trillion. So it's basically a wash. That's the budget math anyway. The real answer is more complicated. Actually using tariffs to finance a big chunk of the federal government would be a painful and perilous undertaking, budget wonks say. 'It's a very dangerous way to try to raise revenue,' said Kent Smetters of the University of Pennsylvania's Penn Wharton Budget Model, who served in President George W. Bush's Treasury Department. Trump has long advocated tariffs as an economic elixir. He says they can protect American industries, bring factories back to the United States, give him leverage to win concessions over foreign governments — and raise a lot of money. He's even suggested that they could replace the federal income tax, which now brings in about half of federal revenue. 'It's possible we'll do a complete tax cut,'' he told reporters in April. 'I think the tariffs will be enough to cut all of the income tax.'' Economists and budget analysts do not share the president's enthusiasm for using tariffs to finance the government or to replace other taxes. 'It's a really bad trade,'' said Erica York, the Tax Foundation's vice president of federal tax policy. 'It's perhaps the dumbest tax reform you could design.'' For one thing, Trump's tariffs are an unstable source of revenue. He bypassed Congress and imposed his biggest import tax hikes through executive orders. That means a future president could simply reverse them. 'Or political whims in Congress could change, and they could decide, 'Hey, we're going revoke this authority because we don't think it's a good thing that the president can just unilaterally impose a $2 trillion tax hike,' '' York said. Or the courts could kill his tariffs before Congress or future presidents do. A federal court in New York has already struck down the centerpiece of his tariff program — the reciprocal and other levies he announced on what he called 'Liberation Day'' April 2 — saying he'd overstepped his authority. An appeals court has allowed the government to keep collecting the levies while the legal challenge winds its way through the court system. Economists also say that tariffs damage the economy. They are a tax on foreign products, paid by importers in the United States and usually passed along to their customers via higher prices. They raise costs for U.S. manufacturers that rely on imported raw materials, components and equipment, making them less competitive than foreign rivals that don't have to pay Trump's tariffs. Tariffs also invite retaliatory taxes on U.S. exports by foreign countries. Indeed, the European Union this week threatened 'countermeasures'' against Trump's unexpected move to raise his tariff on foreign steel and aluminum to 50%. 'You're not just getting the effect of a tax on the U.S. economy,' York said. 'You're also getting the effect of foreign taxes on U.S. exports.'' She said the tariffs will basically wipe out all economic benefits from the One Big Beautiful Bill's tax cuts. Smetters at the Penn Wharton Budget Model said that tariffs also isolate the United States and discourage foreigners from investing in its economy. Foreigners see U.S. Treasurys as a super-safe investment and now own about 30% of the federal government's debt. If they cut back, the federal government would have to pay higher interest rates on Treasury debt to attract a smaller number of potential investors domestically. Higher borrowing costs and reduced investment would wallop the economy, making tariffs the most economically destructive tax available, Smetters said — more than twice as costly in reduced economic growth and wages as what he sees as the next-most damaging: the tax on corporate earnings. Tariffs also hit the poor hardest. They end up being a tax on consumers, and the poor spend more of their income than wealthier people do. Even without the tariffs, the One Big Beautiful Bill slams the poorest because it makes deep cuts to federal food programs and to Medicaid, which provides health care to low-income Americans. After the bill's tax and spending cuts, an analysis by the Penn Wharton Budget Model found, the poorest fifth of American households earning less than $17,000 a year would see their incomes drop by $820 next year. The richest 0.1% earning more than $4.3 million a year would come out ahead by $390,070 in 2026. 'If you layer a regressive tax increase like tariffs on top of that, you make a lot of low- and middle-income households substantially worse off,'' said the Tax Foundation's York. Overall, she said, tariffs are 'a very unreliable source of revenue for the legal reasons, the political reasons as well as the economic reasons. They're a very, very inefficient way to raise revenue. If you raise a dollar of a revenue with tariffs, that's going to cause a lot more economic harm than raising revenue any other way.''
Associated Press
16 minutes ago
- Associated Press
Attorneys in NCAA antitrust case to share $475M in fees, with potential to reach $725M
The attorneys who shepherded the blockbuster antitrust lawsuit to fruition for hundreds of thousands of college athletes will share in just over $475 million in fees, and the figure could rise to more than $725 million over the next 10 years. The request for plaintiff legal fees in the House vs. NCAA case, outlined in a December court filing and approved Friday night, struck experts in class-action litigation as reasonable. Co-lead counsels Steve Berman and Jeffrey Kessler asked for $475.2 million, or 18.3% of the cash common funds of $2.596 billion. They also asked for an additional $250 million, for a total of $725.2 million, based on a widely accepted estimate of an additional $20 billion in direct benefits to athletes over the 10-year settlement term. That would be 3.2% of what would then be a $22.596 billion settlement. 'Class Counsel have represented classes of student-athletes in multiple litigations challenging NCAA restraints on student-athlete compensation, and they have achieved extraordinary results. Class Counsel's representation of the settlement class members here is no exception,' U.S. District Judge Claudia Wilken wrote. University of Buffalo law professor Christine Bartholomew, who researched about 1,300 antitrust class-action settlements from 2005-22 for a book she authored, told The Associated Press the request for attorneys' fees could have been considered a bit low given the difficulty of the case, which dates back five years. She said it is not uncommon for plaintiffs' attorneys to be granted as much as 30% of the common funds. Attorneys' fees generally are calculated by multiplying an hourly rate by the number of hours spent working on a case. In class-action lawsuits, though, plaintiffs' attorneys work on a contingency basis, meaning they get paid at the end of the case only if the class wins a financial settlement. 'Initially, you look at it and think this is a big number,' Bartholomew said. 'When you look at how contingency litigation works generally, and then you think about how this fits into the class-action landscape, this is not a particularly unusual request.' The original lawsuit was filed in June 2020 and it took until November 2023 for Wilken to grant class certification, meaning she thought the case had enough merit to proceed. Elon University law professor Catherine Dunham said gaining class certification is challenging in any case, but especially a complicated one like this. 'If a law firm takes on a case like this where you have thousands of plaintiffs and how many depositions and documents, what that means is the law firm can't do other work while they're working on the case and they are taking on the risk they won't get paid,' Dunham said. 'If the case doesn't certify as a class, they won't get paid.' In the request for fees, the firm of Hagens Berman said it had dedicated 33,952 staff hours to the case through mid-December 2024. Berman, whose rate is $1,350 per hour, tallied 1,116.5 hours. Kessler, of Winston & Strawn, said he worked 1,624 hours on the case at a rate of $1,980 per hour. The case was exhaustive. Hundreds of thousands of documents totaling millions of pages were produced by the defendants — the NCAA, ACC, Big Ten, Big 12, Pac-12 and SEC — as part of the discovery process. Berman and Kessler wrote the 'plaintiffs had to litigate against six well-resourced defendants and their high-powered law firms who fought every battle tooth and nail. To fend off these efforts, counsel conducted extensive written discovery and depositions, and submitted voluminous expert submissions and lengthy briefing. In addition, class counsel also had to bear the risk of perpetual legislative efforts to kill these cases.' Antitrust class-action cases are handled by the federal court system and have been harder to win since 2005, when the U.S. Class Action Fairness Act was passed, according to Bartholomew. 'Defendants bring motion after motion and there's more of a pro-defendant viewpoint in federal court than there had been in state court,' she said. 'As a result, you would not be surprised that courts, when cases do get through to fruition, are pretty supportive of applications for attorneys' fees because there's great risk that comes from bringing these cases fiscally for the firms who, if the case gets tossed early, never gets compensated for the work they've done.' ___ AP college sports:
CNBC
20 minutes ago
- CNBC
Jobs, profit-taking and 2 other things that drove the stock market this week
The very public implosion of President Donald Trump and Elon Musk 's alliance may have captivated Wall Street this week, but the government's solid monthly employment report was the real showstopper. In addition to those two developments, earnings from Club names CrowdStrike and Broadcom , and the back-and-forth between Trump and Chinese President Xi Jinping on trade defined the market. 1. Jobs, stocks , Fed : The S & P 500 jumped 1% on Friday on the labor data , which showed job growth in May that was strong enough to ease fears of a recession and warmer-but-not-too-hot wage inflation. With both sides of the Federal Reserve's dual mandate of maximizing employment and fostering price stability in check, the market still felt comfortable rooting for an interest rate cut down the line. For the week, the S & P 500 rose 1.5% , logging its back-to-back weekly gains. For the second time this week, and despite Friday's solid nonfarm payrolls data, Trump prodded Fed Chairman Jerome Powell to cut rates – this time, calling for a full percentage point reduction . The market is predicting virtually no chance of a reduction at the central bank's upcoming meeting later this month. On Wednesday, the president called for a Fed rate cut after the weak ADP private sector hiring report. Powell has been saying all along that he won't be influenced by politics and will be economic data dependent. The Fed chief has also said he would like to see more data on whether Trump's tariffs, which are moving targets and not finalized, negatively impact the economy. 2. Scorched Earth : Could the relationship between the world's most powerful man, Trump, and the world's richest, Musk, end any other way than the way it did Thursday? Both billionaires went after each other on social media. Trump called Musk "crazy" and threatened to kill federal contracts with Musk's companies, including SpaceX. Musk called for Trump's impeachment, criticized Trump's "Big Beautiful Bill" of tax cuts and spending priorities making its way on Capitol Hill, and then said SpaceX would decommission its Dragon spacecraft. Musk later took back that last part. Tesla shares sank over 14% on Thursday – but on Friday, recovered more than 3.5%. Also on Friday, Trump said he was not interested in having a call with Musk. Putting all the drama aside, there are real issues at play here concern the federal budget deficit and the billions upon billions of dollars of stock market value that has been erased from Musk's Tesla . Shares have lost more than 25% year to date. 3. Back on, again : The other Washington-related saga that has implications for stocks is trade talks between the U.S. and China. Trump announced on Friday that U.S.-China trade talks will take place Monday in London. The news comes after Trump and Xi finally talked on the phone Thursday. Last month, high-level U.S. officials met with their Chinese counterparts in Geneva, Switzerland, where they each agreed to pause most of the triple-digit tariff rates on each other's imports. Before the Trump-Xi call, the U.S. president accused China of violating that agreement – to which the Chinese accused the U.S. of not adhering to the deal. Reuters reported on Friday that China granted licenses for rare earth elements to the top three U.S. automakers. Back in April, China, which dominates in rare earths, put export curbs on the resources, which are key to making many of our modern-day products. 4. Records, then selling : Both CrowdStrike and Broadcom saw their stocks finish at record closing highs ahead of this week's respective earnings reports, which led to selling. CRWD YTD mountain CrowdStrike YTD Shares of CrowdStrike hit its closing record of just under $489 on Tuesday. Then after the bell, the cybersecurity delivered a mostly solid quarter . The stock lost 5.8% on Wednesday. Good old profit-taking after a big run to all-time highs contributed to the selling, and so did concerns about mixed guidance and some noise around federal government inquiries into the company — though nothing has changed in our stance toward last July's massive IT outage and its dealings with software reseller Carahsoft. The outage was caused by a botched CrowdStrike software update. CEO George Kurtz appeared on "Mad Money" with Jim and defended his company in the probes , saying the company is cooperating with investigators. On earnings night, we raised our price target to $500 per share from $400 but kept our hold-equivalent 2 rating in recognition of this year's more than 35% gain in the stock. Shares were modestly higher on Thursday and Friday. AVGO YTD mountain Broadcom YTD Broadcom shares closed at a record high of $261 each Wednesday. Then, after Thursday's close, Broadcom delivered a strong quarter and upbeat comments about its key artificial intelligence business. There are no signs that demand for the company's custom AI chips, or "accelerators," and networking solutions will let up anytime soon. On the software side, Broadcom continues to make the most of its blockbuster VMware acquisition. But again, profit-takers swooped in during Friday's session and pushed the stock down 5%. On earnings night, we raised our price target on the stock to $290 per share from $230 but kept our 2 rating. During Friday's Morning Meeting, Jim did tell investors without a position in Broadcom that it would be a good time to buy, starting with a partial position then building it up over time. (Jim Cramer's Charitable Trust is long CRWD, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
