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Posted on 05/21/2025 12:44:01 PM PDT by Miami Rebel
Treasury yields moved back to levels that have pressured the economy and financial markets in the past as investors feared a new U.S. tax bill could worsen the country’s budget deficit, a risk highlighted in a Moody’s downgrade of the U.S. credit rating to end last week.
The 30-year Treasury bond yield was up about 11 basis points to 5.08%, breaking above the key 5% level for the second time this week and reaching a level not seen since October 2023. The 10-year yield was 10 basis points higher at 4.59%, returning to levels that caused turmoil in the markets back in April and played a part in President Donald Trump pausing his stiffest tariffs. The 2-year yield advanced 4 basis points, reaching 4.01%. One basis point is equivalent to 0.01%, and yields and prices move in opposite directions.
A poor auction at 1 p.m. ET for 20-year debt was the catalyst for taking yields to their highs of the session. BMO called the 20-year auction “lackluster.” The fear is that the buying appetite for U.S. Treasurys could be drying up as the supply of new debt to pay our bills increases.
Investors are keeping an eye on discussions around U.S. President Donald Trump’s budget bill with Republicans haggling over the size of deductions for state and local taxes. Republicans worried about the spending in the bill are meeting with Trump at the White House on Wednesday to hammer out disagreements. If approved by Memorial Day, as is the goal for House speaker Mike Johnson, the bill could end up increasing the U.S. government’s deficit by trillions at a time when fears of a flare-up in inflation due to Trump tariffs are already weighing on bond prices and boosting yields.
“While the selling of U.S. Treasuries in the immediate aftermath of the Moody’s downgrade was relatively modest, Treasury yields have climbed steadily since the end of April as budget negotiations have come to the fore,” wrote Mark Haefele, UBS Global Wealth Management chief investment officer, in a note Wednesday. The Republicans’ bill “is expected to add trillions of dollars to the country’s [$36 trillion] deficit over the next decade. This will likely lead to an increase in the supply of Treasury debt, exerting pressure on the bond market.”
Late Friday, Moody’s downgraded the U.S. government’s credit rating, citing the increasing burden of financing the government’s ballooning budget deficit. That sent the 30-year Treasury yield surging past 5% on Monday for the first time this week.
“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 in the report.
Bridgewater Associates founder and billionaire Ray Dalio added on Monday that the Moody’s downgrade poses a greater threat to U.S. Treasurys than realized, as the credit agency isn’t even considering the risk of the federal government printing money to pay its debt.
“They don’t include the greater risk that the countries in debt will print money to pay their debts thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting (rather than from the decreased quantity of money they’re getting),” Dalio said in a post on social media platform X.
If government issues more and more debt to pay its rising obligations, the increased supply would theoretically lower bond prices and spike yields.
Economists, for now, are not expecting a recession this year now that Trump has backed off his highest tariffs. However, with 30-year and 10-year yields as benchmarks for consumer loans like mortgages, rising rates could raise that recession risk.
The Mortgage Bankers Association said on Wednesday that mortgage applications dropped 5.1% in the previous week because of rising rates.
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We are falling off a cliff in slow motion...
It’s one thing when rates go up due to the Fed.
It’s a whole new ballgame when they go up due to market pressure.
The obvious thing to do is demand lower spending and deficit in the bill, which the evil holdouts are doing.
But truth is, it won’t matter. The numbers are too big to be addressed.
Regardless, the bond vigilantes have either arrived or they are pulling into the parking lot. And that will be that.
And these rates manifest AFTER the Fed has started buying Treasuries.
QE can’t fix it.
This big, bad, bold, beautiful bill is going to blast open the deficit. But it’s the handful of budget hawks who are labeled as “RINOs.”
....except for them of course.
We are lot lower at 5.1% compared to during Carter-Reagan years when my municipal bonds were yielding double digits.
I’m not sure what you mean, but I’m certain that cutting the deficit wouldn’t be met with damnation by the market. This bill does the opposite.
The republicans are cutting government waist, And then working with democrats to increase spending by much more than they saved.
I think you are wrong because the illegal spending has been out and will play a big role in this budget, which does not take into account the billions of dollars spent on politicians just through USAID alone. Consider that in your thinking, and guess what, all of Trump’s appointees are still cutting fat in their departments....Consider the fact that the DoD buys nuts and bolts at triple what airlines pay for parts used by airlines, but not by the USAF. I know this because I worked for a long-time airline. We had contracts for AF 1 and the KC10 Tankers and saw the bs that went on with the USAF folks like repainting an access panel we had to open to fix a problem...I am a ex Pan Am mechanic an I miss all my co-workers
My first mortgage was 10.25%, but the issue isn’t the abstract number, it’s the direction of rates. The velocity of change counts too.
So what was DOGE all about if not to clearly demonstrate that our government can operate with much much less than it does now.
So what was DOGE all about if not to clearly demonstrate that our government can operate with much much less than it does now.
The fat that has been cut is already budgeted. And the DOGE claims are being reduced with regularity.
But these issues aside, even optimally the cuts would make up a rounding error in $6.8 trillion budget.
(By the way, notwithstanding all the theoretical savings, I think that the supposed $175 billion price tag for the Golden Dome, should it truly come to pass, will prove to be a not very funny joke.)
DOGE was a noble concept that was launched with great ballyhoo.
Like Bureau of Labor Statistics numbers, the savings have been subject to major revisions.
43 contracts that were featured on DOGE’s Wall of Receipts have been reinstated, adding back over $200 million in spending.
good for you bond market.
we need to stick every log we can into the fat piggy eyes of the greedy, feckless gop.
Trump needs to realize the dissidents who are holding up his bill are the real heroes and that moreover they are the only ones in sync with the market, which should be his goal. Fight the market and you WILL lose, one way or the other. He needs to get serious about slashing spending/graft/waste and stop treating the dissidents as his opposition. You can’t defeat the Deep State by continuing to fund it.
My VA in 76 was 8%. My next purchase, due to a move, had a 13% note in 1980. I was really up against it at 13% but looked fondly at is later as the rates actually got to close to 18% by 81.
in 81, 25 yr zeros were paying 9.7% (thank you Bob Brinker). Historically rates are still low but the rapid rise is going to catch many in a bind, either because they cannot sell their homes with mtgs at 3% or because for some dumb reason they have adjustable mortgages-doubling interest rates almost halves the leverage ability to buy.
Then again, perhaps these are transitory. IMO, they don’t extend those tax rates, the GOP will be history in the next election.
It may be just as you say. Or it may be that higher interest rates have a secondary result of lowering home prices. I'm of the belief that very low interest rates artificially inflate home prices. If rates are raised, then after a short time home prices might go down and make the house sellable (if the homeowner is willing to sell at a lower price, assuming of course his new home he's buying is also at a low price).
“very low interest rates artificially inflate home prices”
That is correct.
The past decade or so saw the rise of corporations using homes as investment vehicles—which did not increase the supply but did increase the demand.
That itself was due to low interest rates which made it cheap to raise capital for any venture—and investments were seeking anything that could get the a decent return.
Since most homes are not bought or sold in any given year a major increase in demand escalates the price in any given area in a hurry.
These days the quickest way to reduce home prices are a combination of massive construction and banning new purchases of homes by folks who do not live in them (or own only a few other homes they rent out—or some similar restriction).
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