Treasuries Tumble as House Passes Trump’s Tax Bill: Markets Wrap

Longer-dated U.S. Treasuries slid further, and stock futures dipped after the House narrowly approved President Donald Trump’s multi-trillion-dollar tax bill, raising concerns about the ballooning U.S. deficit. The legislation, aimed at averting a year-end tax hike, has reignited fears of fiscal unsustainability, with bond yields climbing and equity markets showing signs of strain.

The 30-year Treasury yield surged past 5.14%, while the 10-year yield rose two basis points to 4.62%. Meanwhile, S&P 500 futures dropped 0.4%, signaling a potential third consecutive day of declines for the benchmark index. As markets grapple with these developments, investors are closely monitoring economic indicators and corporate moves for clues on future stability.

Deficit Concerns Weigh on Bonds

The passage of the tax bill, which adds trillions to the U.S. debt, comes on the heels of a Moody’s Ratings downgrade that highlighted the nation’s fiscal challenges. This has fueled a sell-off in Treasuries, with bond vigilantes, investors demanding higher yields for holding government debt, reasserting their influence.

“The market is signaling deep concerns about debt sustainability,” said Beata Manthey, a strategist at Citigroup, in a recent interview. Globally, long-term bond yields are climbing, with the U.S. 30-year yield reflecting heightened investor caution.

Real-time data indicates that the 10-year Treasury yield has hovered around 4.62% today, with market participants bracing for potential further increases if fiscal pressures persist.

ALSO READ | S&P 500 Futures Waver as Six-Day Rally Faces Uncertainty: Live Updates

Equity Markets Feel the Heat

Equity markets, which had been buoyed by a recent rally, are now facing headwinds. The S&P 500, on the verge of entering bull market territory, is under pressure as higher yields driven by fiscal concerns erode valuations.

“Rising yields tied to inflation or deficit fears are less supportive of equities than those linked to growth,” noted Mathieu Racheter, head of equity strategy at Julius Baer.

Despite a robust labor market evidenced by a drop in U.S. jobless claims to 227,000 for the week ending May 17, uncertainty around trade policies and tariffs is clouding the outlook. Federal Reserve Governor Christopher Waller suggested that interest rate cuts could occur in late 2025 if Trump’s proposed tariffs stabilize at around 10%.

Cryptocurrency and Commodities Diverge

Bitcoin continued its meteoric rise, surpassing $111,000 for the first time, as investors viewed it as a hedge against economic uncertainty. Richard Galvin, co-founder of DACM, stated that the crypto market is increasingly distancing itself from equities, with Bitcoin benefiting as a value store.

In contrast, oil prices fell, with Brent crude trading near $64 per barrel and West Texas Intermediate approaching $60, as OPEC+ considers a significant production increase. These divergent trends highlight the complex dynamics shaping global markets.

Did You Know?
The term “bond vigilantes” was coined in the 1980s to describe investors who sell bonds to protest unsustainable fiscal policies, pushing yields higher.

Corporate and Economic Updates

Several corporate developments are capturing attention. Toronto-Dominion Bank outperformed expectations, setting aside less for loan losses despite tariff-related growth concerns. Nike shares climbed in premarket trading after the company rejoined Amazon’s online platform.

In Europe, BYD overtook Tesla in electric vehicle sales, while ING Groep explores a U.S. banking license to enhance dollar liquidity. AT&T’s $5.75 billion acquisition of Lumen Technologies’ consumer fiber operations aims to expand its broadband reach. Meanwhile, Manchester United shares faced a sharp decline after a Europa League final loss to Tottenham Hotspur.

Economic Indicators on the Horizon

Later today, we expect S&P Global's preliminary May surveys of manufacturing and services to reveal persistent industrial weakness and modest growth in the service sector. These reports, along with ongoing debates on fiscal and trade policy, are likely to impact market sentiment.

JPMorgan Chase CEO Jamie Dimon warned of stagflation risks, citing geopolitical tensions, deficits, and inflationary pressures. Dimon emphasized that the economy is not in a favorable position and urged caution in the face of these challenges.