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Globe and Mail
24-05-2025
- Business
- Globe and Mail
Bond Market (TLT) Anxiety Grows as Moody's Downgrades US Credit Rating
U.S. long-term borrowing costs are climbing sharply as bond markets express mounting anxiety about America's ballooning fiscal deficits. The term premium on 10-year Treasuries (TLT)—extra compensation investors require to hold long-term bonds—approached 1%, a level unseen since 2014. Investors' unease was exacerbated by Moody's downgrade of U.S. sovereign debt and weak demand in recent Treasury auctions, reflecting skepticism toward the nation's widening budget gap and surging debt burden. This week's turmoil was amplified by the U.S. House passing a multitrillion-dollar extension of Trump-era tax cuts, raising fresh fears that the nation's fiscal trajectory is unsustainable. As 30-year Treasury yields briefly touched 5.15%, their highest level in nearly two decades, markets sent a clear message: investors are demanding greater compensation for taking on long-term U.S. debt, which historically was considered the world's safest asset. Market Overview: 10-year U.S. Treasury term premium nearing highest levels since 2014 30-year yields surge past 5%, reflecting deepening fiscal concerns Global bond yields also rising amid deficit worries and inflation fears Key Points: Moody's downgrade and weak Treasury auctions amplify debt market anxiety Trump's extensive tax cuts exacerbate fears of unsustainable borrowing Investors shifting away from U.S. assets due to persistent policy uncertainty Looking Ahead: Long-term borrowing costs likely to remain elevated amid fiscal uncertainty Risk of foreign central banks selling U.S. Treasuries increases as yields rise globally Persistent market volatility expected unless U.S. fiscal policy regains investor confidence Bull Case: Despite Moody's downgrade and rising yields, some prominent Wall Street strategists view any resultant dip in stocks as a buying opportunity, particularly if broader geopolitical conditions, like trade truces, show signs of improvement. The U.S. has a history of effective monetary policy led by an independent Federal Reserve, which can help navigate economic challenges and mitigate the impact of fiscal concerns on markets. The Treasury Secretary has downplayed the immediate impact of the Moody's downgrade, expressing confidence that administration policies will spur economic growth capable of managing the debt burden. While rising yields increase borrowing costs, higher yields on U.S. Treasuries could, in some scenarios, attract certain investors seeking better returns, potentially supporting demand for U.S. debt if risk perceptions stabilize. Stock markets have demonstrated resilience, with instances of investors buying on dips, suggesting underlying confidence in U.S. corporate performance or the broader economy's ability to absorb shocks. Bear Case: Sharply rising U.S. long-term borrowing costs, with the 10-year Treasury term premium nearing its highest since 2014 and 30-year yields surpassing 5.15%, reflect deep investor anxiety about America's ballooning fiscal deficits and surging debt burden. Moody's downgrade of U.S. sovereign debt and weak demand in recent Treasury auctions amplify concerns that the nation's fiscal trajectory is unsustainable, potentially leading to persistently higher borrowing costs for the government, businesses, and consumers. The U.S. House passing a multitrillion-dollar extension of Trump-era tax cuts adds to fears of an unmanageable deficit, which the Congressional Budget Office estimates will significantly increase the national debt. There are growing signs of foreign investors retreating from U.S. assets due to persistent policy uncertainty and fiscal risks, which could trigger a dangerous feedback loop of rising yields and diminishing demand for U.S. debt. Turmoil in other major bond markets, such as Japan, where yields are hitting multi-decade highs amid concerns over its own fiscal health and changing monetary policy, could reduce global demand for U.S. Treasuries as domestic Japanese bonds become more attractive or as carry trades unwind. The traditional status of U.S. Treasuries as the world's safest asset is being challenged, with investors demanding greater compensation for taking on long-term U.S. debt, signaling eroding confidence in U.S. fiscal management. Sustained high Treasury yields (e.g., 10-year above 4.5%) can pressure stock valuations and create headwinds for the equity market. Japan's bond market also encountered significant turmoil, as reduced purchases by the Bank of Japan and escalating inflation drove yields to their highest levels since the 1990s. Japanese policymakers warned of potential instability, suggesting government intervention may become necessary if conditions worsen. Strategists highlight that Japan's bond woes could spill over into global markets, notably impacting demand for U.S. Treasuries. Going forward, sustained pressure on bond yields underscores deep-rooted skepticism about the ability of governments, particularly the U.S., to manage their spiraling debts amid higher interest rates. Investors now confront a market in which traditional safe havens are increasingly viewed as risky, raising the stakes for policymakers globally. As fiscal uncertainties deepen, expect the trajectory of U.S. debt costs to play a critical role in shaping investor sentiment in the months ahead.
Yahoo
22-05-2025
- Business
- Yahoo
Equities Fall, Yields Rise Intraday as Markets Track Tax-Cut Bill Updates
US benchmark equity indexes were lower intraday, while Treasury yields rose as markets tracked devel Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Free Malaysia Today
20-05-2025
- Business
- Free Malaysia Today
European stocks close higher as Wall Street dips
In Europe, London and Paris closed higher, while Frankfurt's DAX gained 0.4%, surpassing 24,000 points for the first time. (AP pic) NEW YORK : European and Asian stocks closed higher on Tuesday while Wall Street equities retreated as markets monitored US Treasury yields amid worries about the US budget deficit. Major US indices spent the entire session in negative territory as the S&P 500 finished lower after six straight positive sessions. 'The main driver is a consolidation day,' said analyst Patrick O'Hare. 'The market has just been so red hot.' US President Donald Trump visited Capitol Hill Tuesday, where he faces challenges to unify a House Republican caucus that includes lawmakers from high-tax Northeastern states seeking a bigger tax deduction and members who are worried about increasing the deficit. Investors have also been fixated on higher yields in the Treasury market. Moody's highlighted the deficit last week in a downgrade of the US credit rating. In Europe, London and Paris finished higher and Frankfurt's DAX gained 0.4% to go past 24,000 points for the first time. Some of the rise stemmed from hopes of a European Central Bank interest rate cut next month, said Philippe Cohen, portfolio manager at Kiplink. Luxury clothing company Chanel waited until after Paris's close to report a 28% drop in 2024 net profit. Asian stocks closed mostly higher, with Hong Kong rising more than one percent, buoyed by China cutting its interest rates to historic lows, and Tokyo also up. The Chinese central bank move, which had been expected, comes as officials battle to kickstart the economy amid trade tensions with the US and a persistent domestic spending slump. Elsewhere, the Australian central bank cut its key interest rate to its lowest level in two years, citing steady progress in bringing inflation under control. In corporate news, billionaire Elon Musk said he was pulling back from spending his fortune on politics, and asserted the Tesla electric car company he runs was doing well despite blowback over his support of Trump. Aside from a Tesla sales decline in Europe, 'we're strong everywhere else,' Musk said. Chinese battery giant CATL ended its first day on the Hong Kong Stock Exchange more than 16% higher, having raised US$4.6 billion in the world's biggest initial public offering this year. A global leader in the sector, CATL produces more than a third of all electric vehicle batteries sold worldwide.
Bloomberg
19-05-2025
- Business
- Bloomberg
Bloomberg Surveillance TV: May 19, 2025
- Krishna Memani, CIO at Lafayette College - Jeannette Lowe, Director: Policy Research at Strategas Securities - Kathy Jones, Chief Fixed Income Strategist at Charles Schwab - Neil Dutta, Head: US Economic Research at Renaissance Macro Krishna Memani, CIO at Lafayette College and Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, join to discuss the US economic outlook after the Moody's US credit downgrade and rise in long-term Treasury yields. Jeannette Lowe, Director: Policy Research at Strategas Securities, talks about the latest on tax bill negotiations and President Trump's economic agenda. Neil Dutta, Head: US Economic Research at Renaissance Macro, discusses US economic indicators and whether the US economy is weakening, as well as the outlook for rate cuts in 2025.
