Treasury yields climb amid falling markets, dollar, and US downgrade
On Friday, Moody’s Investors Service downgraded the United States’ sovereign credit rating from the highest “AAA,” highlighting concerns regarding the nation’s declining fiscal outlook. This lead to Treasury yields increasing, while stocks and the dollar declining. Longer-dated Treasury yields increased, while global stock indexes and the dollar experienced a decline on Monday. This movement was influenced by apprehensions regarding a US tax bill and the nation’s debt burden, alongside Moody’s recent downgrade of the US sovereign credit rating.
The tax-cut legislation proposed by US President Donald Trump secured the endorsement of a significant congressional committee on Sunday. Republicans, holding the reins of the US House of Representatives, are poised to advance the bill toward passage this week. The 30-year Treasury yield reached an 18-month peak, as investors express apprehension that the tax legislation may elevate the debt burden beyond earlier projections. The 30-year bond yield increased by 9.4 basis points to 4.992 per cent, having reached a peak of 5.037 per cent, the highest level observed since November 2023.
Moody’s actions were primarily symbolic rather than substantive. “The other agencies had already downgraded the debt,” stated Peter Cardillo, chief market economist at Spartan Capital Securities in New York. Indeed, yields are trending upwards in response to the news, and there is potential for a further increase. However, they are experiencing an upward trend for additional factors as well,” he noted. In general, the market is not exhibiting significant reactions to the Moody’s announcement. Instead, it appears to be a market that has risen and is now poised to potentially consolidate its recent gains.
US Treasury Secretary Scott Bessent utilized television interviews on Sunday to downplay the Moody’s downgrade, simultaneously cautioning trade partners that they would face maximum tariffs should they fail to engage in negotiations in “good faith”. Bessent is set to attend a G7 meeting this week for further discussions.
The Dow Jones Industrial Average decreased by 59.42 points, reflecting a decline of 0.15 percent, settling at 42,592.31. The S&P 500 experienced a drop of 24.46 points, equivalent to a 0.41 percent decrease, closing at 5,933.92. Meanwhile, the Nasdaq Composite saw a reduction of 119.50 points, which corresponds to a 0.62 percent fall, ending at 19,091.89. The S&P 500 recorded its fifth consecutive day of gains on Friday. The MSCI index measuring global stocks experienced a decline of 1.73 points, representing a decrease of 0.20 percent, settling at 878.89. The pan-European STOXX 600 index experienced a decline of 0.17 percent, whereas Europe’s comprehensive FTSEurofirst 300 index decreased by 3.99 points, equivalent to a 0.18 percent drop. MSCI’s broadest index of Asia-Pacific shares outside Japan experienced a decline of 0.5 percent at the close. Recent Chinese economic data presents a varied picture, indicating challenges within the economy.
Trump’s tariff war has diminished consumer sentiment, and analysts will be examining earnings from Home Depot and Target this week for insights into spending trends. On Saturday, Trump remarked that Walmart ought to “eat the tariffs” following the announcement from the world’s largest retailer indicating that it would need to begin increasing prices as a result of the levies.
The US dollar experienced a broad decline, reaching a low not seen in over a week against the safe-haven yen, Swiss franc, and euro. The dollar experienced a decline of 0.38 percent against the Japanese yen, settling at 145.06. Atlanta Federal Reserve president Raphael Bostic stated in remarks to CNBC on Monday that the central bank might only be positioned to reduce interest rates by a quarter point for the remainder of the year, citing apprehensions regarding escalating inflation driven by increased import taxes.
In a recent interview, European Central Bank President Christine Lagarde indicated that the recent depreciation of the dollar signifies a diminishing confidence in US policies. In commodities, US crude increased by 0.24 percent to $62.64 per barrel, while Brent experienced a slight uptick to $65.45 per barrel, reflecting a 0.06 percent rise for the day. Spot gold increased by 1 percent, reaching $3,234.34 per ounce. US gold futures increased by 1.54 percent, reaching $3,231.10 per ounce.
