- The 30-year Treasury yield topped 5% on Monday as bonds sold off after the Moody’s downgrade of the U.S. credit rating renewed U.S. debt concerns. Meanwhile, Republicans in Congress advanced a bill that is estimated to add trillions of dollars to the budget deficit, worsening the fiscal situation that Moody’s warned of.
Long-term U.S. bonds sold off on Monday, lifting yields to levels seen after President Donald Trump spooked markets with his April 2 tariffs.
The 30-year Treasury yield jumped more than 10 basis points, topping 5%, before easing just below that threshold by midday.
The last time it touched 5% was in the immediate aftermath of Trump’s much steeper-than-expected “reciprocal tariffs,” which sparked a massive selloff and raised fears that investors would turn away from U.S. assets broadly.
The bond market panic in particular reportedly caught Trump’s attention as he later announced a 90-day pause on his most aggressive duties. He acknowledged soon after Liberation Day that “people were jumping a little bit out of line. They were getting yippy, you know, they were getting a little bit yippy, a little bit afraid.”
He added that the bond market is “very tricky” and that “I saw last night where people were getting a little queasy.”
Unlike last month’s tariff-driven spike in yields, Monday’s action came as the bond market grappled with reminders that the U.S. debt situation is worsening and could soon deteriorate at an even faster clip.
On Friday, Moody’s downgraded the U.S. credit rating one notch to Aa1 from AAA, citing “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”
Wall Street analysts have said the downgrade doesn’t tell investors anything new and follows similar moves from Standard & Poor’s in 2011 and Fitch in 2023. Bank of America also said Monday that the downgrade is unlikely to trigger any forced selling of Treasuries.
But lawmakers are trying to dig a deeper fiscal hole. On Sunday, Republicans on the House Budget Committee advanced a tax-and-spending bill after failing to get enough votes to do so on Friday.
The legislation would extend tax cuts from Trump’s first term and add new ones. While it also calls for less spending, the tax cuts will still deepen the budget deficit by trillions of dollars, further worsening the fiscal picture that Moody’s warned on.
“We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” Moody’s said Friday.
Given that the bond market has been credited with causing Trump to ease up on his tariffs, Wall Street is looking for signs that they may also force lawmakers to back off on their tax-cut plans.
Market veteran Ed Yardeni, who coined the term “bond vigilantes” in the 1980s, said in a note on Monday that they are still vigilant.
“The Bond Vigilantes might weigh in on the subject if Trump manages to ram a bill through Congress that they consider to be ugly for the deficit outlook rather than beautiful,” he wrote. “Increasing the odds of a spike in the bond yield would be higher-than-expected inflation readings in coming months resulting from Trump’s tariffs.”
