Topline
Long-term Treasury yields eclipsed the 5% threshold again on Wednesday after an earlier auction for long-term U.S. government bonds had soft demand, pulling each of the three major stock market indexes toward their worst day in a month.
An earlier rise for long-term Treasury notes followed Moody’s downgrade of the U.S. credit rating, … More
Key Facts
The Dow Jones Industrial Average fell 817 points, or nearly 2%, while the S&P 500 and tech-heavy Nasdaq declined by 1.6% and 1.4%, respectively, as each index closed Wednesday with their worst single-day losses since April 21.
UnitedHealth headlined a decline for the Dow, with shares falling 5.7% after a Guardian report claimed the company paid off nursing homes to reduce hospital transfers (UnitedHealth denied the claims in a statement to the Guardian).
Other loss leaders of the day included Nike (4.1%), Apple (2.3%), Nvidia (1.9%), Amazon (1.4%), Palantir (3.9%) and Tesla (2.6%).
Yields for 20-year U.S. Treasury notes reached 5.1% on Wednesday, the highest rate for the bonds since Nov. 2, 2023, while 30-year yields hit 5.08%, marking the second time the longer-term bonds eclipsed 5% this week.
The 10-year yields briefly rose above 4.6% and neared this year’s peak of 4.62% set in February before ending Wednesday at 4.59%.
Why Are Treasury Yields Spiking?
The Treasury Department reportedly held an auction for $16 billion of new 20-year bonds on Wednesday, though demand for the bonds was much lower than expected. Investors accepted a yield of 5.04% on the bonds, the highest rate for a 20-year note since October 2023. Higher yields were offered to investors so they would be more interested in buying U.S. debt. Treasury yields also spiked earlier this week, after the financial ratings agency Moody’s downgraded the U.S. government’s credit rating. Moody’s said its downgrade reflected “the increase over more than a decade in government debt,” while U.S. interest payment ratios are “significantly higher than similarly rated sovereigns.”
Key Background
As yields for Treasury notes increase, the cost of borrowing rises for consumers, leading to likely higher interest rates for mortgages, credit cards and other loans. Higher bond yields also indicate lower bond prices, as investors search for bonds with a higher yield. These increases for long-term Treasury notes also coincide with investor concerns about the long-term effects of growing national debt. The U.S. national debt reached $36.2 trillion as of May 15, according to the Treasury Department.
