The whole Wall Street was shaken up on Wednesday as bond yields shot up because of deficit concerns about a tax cut bill being mulled over in the U.S. House. The Dow Jones Industrial Average took a nosedive, closing down a whopping 817 points, or 1.9%, while the S&P 500 and the Nasdaq also saw significant declines of 1.6% and 1.4% respectively. Investors were on edge as bond yields surged, making U.S. borrowing more pricey and sparking worries about the broader impact on the economy.
The 10-year Treasury yield made a dramatic leap from 4.48% to 4.58%, hitting its highest level since February. The nonpartisan Congressional Budget Office raised eyebrows on Tuesday by revealing that the tax policies supported by Trump could potentially tack on a staggering $3.8 trillion to the national debt. The proposed “One Big Beautiful Bill Act” not only extends the 2017 Trump tax cuts but also includes alterations to Medicaid and immigration policies, among other changes. House Republicans are eyeing a Memorial Day deadline to push the bill through.
The bond sell-off comes at a time when Treasury markets are already experiencing heightened volatility. Long-term bond yields skyrocketed last month following Trump’s implementation of “Liberation Day” tariffs. Moody’s recent U.S. credit downgrade only added fuel to the fire, further roiling debt markets. When a sell-off occurs and demand for bonds diminishes, bond prices plummet, causing bond yields to rise. This, in turn, impacts interest rates on various consumer loans like mortgages and credit cards. The increased borrowing costs for businesses could potentially hinder office expansions or hiring initiatives, potentially leading to an economic slowdown.
