Stocks Get Hit as Weak Treasury Sale Boosts Yields: Markets Wrap

This content was published on May 21, 2025 - 23:17

9 minutes

(Bloomberg) — Wall Street’s worries about a ballooning deficit that threatens America’s status as a safe haven were reflected in a $16 billion Treasury sale that saw lackluster demand – with stocks, bonds and the dollar falling.

Treasuries got hit after a weak auction of 20-year bonds, whose 5% coupon rate was the highest since the tenor was reintroduced in 2020. Long-term debt bore the brunt of the selling, with 30-year yields jumping over 10 basis points. The equity market saw its worst session in a month, with the S&P 500’s slide topping 1.5%. The greenback dropped against most major currencies.

“The soft 20-year auction fueled additional weakness,” said Michael O’Rourke, chief market strategist at JonesTrading. “It has been a theme all week starting with the Moody’s downgrade. Additionally, there is the deficit/budget debate being fought in the background of this environment.”

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Traders have been piling into bets that long-term bond yields would surge on concerns over the US’s swelling debt and deficits, with Moody’s Ratings on Friday lowering the nation’s credit score below the top triple-A level. For many, the message was: Unless America gets its finances in order, the perceived risks of lending to the government will rise.

The White House amped up the pressure on Republicans on Wednesday urging lawmakers to quickly approve President Donald Trump’s signature tax bill, adding that a failure to do so would be the “ultimate betrayal.”

Former Treasury Secretary Steven Mnuchin said he’s more alarmed by the country’s growing budget deficit than its trade imbalances, and urged Washington to prioritize fiscal repair.

“I’m very concerned,” he said during a panel discussion at the Qatar Economic Forum on Wednesday. “The budget deficit is a larger concern to me than the trade deficit. So I’m on the side of, I hope we do get more spending cuts — something that’s very important.”

The S&P 500 fell 1.6%. The Nasdaq 100 lost 1.3%. The Dow Jones Industrial Average slipped 1.9%.

The yield on 10-year Treasuries rose 11 basis points to around 4.6%. A dollar gauge slid 0.3%.

The murky economic outlook has fueled hedging activity in Treasury options, with investors targeting higher rates on longer-dated bonds by the end of the year. Those wagers echo sentiment on Wall Street, where strategists from Goldman Sachs Group Inc. to JPMorgan Chase & Co. are lifting their forecasts for yields.

At BTIG, Jonathan Krinsky says bonds finally appear to be getting equities’ attention.

“These higher yields make it much tougher to justify today’s very high valuation levels,” said Matt Maley at Miller Tabak. “So, it’s something that will likely create some renewed headwinds for stocks.”

To George Saravelos at Deutsche Bank, it’s hard for US equities to stay resilient in this environment.

“The 2023-24 period saw a combined rise in US yields and equities as the market was revising US growth expectations higher. This was entirely reasonable,” he said. “Today is very different. It is hard to make the case that such a (negative) driver of the rising cost of capital is positive for risk assets.”

Saravelos also said that the most-troubling part of the market reaction to the bond auction was that the dollar weakened at the same time.

“At the core of the problem is that foreign investors are simply no longer willing to finance US twin deficits at current level of prices,” he said.

“We expect fiscal and deficit risks to linger as budget proposals imply the deficit will stay above 6%, despite a strong economy, and equity valuation is nearly double its 2011 level when S&P cut the US rating with a post-financial-crisis deficit above 8%,” said Stuart Kaiser, head of US equity trading strategy at Citigroup.

Republicans made some headway in advancing Trump’s bill on Wednesday. House Speaker Mike Johnson announced that he had an agreement with lawmakers from high-tax states to increase the limit on the state and local tax deduction to $40,000, winning over a key faction of members who had threatened to block the legislation.

“The budget is like a bad news, good news, bad news joke,” said Chris Low at FHN Financial. “The first bad news, it has been out of control for years — which is why Moody’s downgraded US debt. The good news, the current budget is tracking to stabilize the deficit, and could even reduce it. The second bad news, the budget needs to shrink, not stabilize.”

Corporate Highlights:

Walmart Inc. is cutting corporate staff in the company’s headquarters in Bentonville, Arkansas, and other offices, people familiar with the matter said, as the world’s biggest retailer looks to trim costs and contends with economic volatility.
AT&T Inc. agreed to buy the consumer fiber operations of Lumen Technologies Inc. for $5.75 billion, expanding its fast broadband service in major cities like Denver and Las Vegas.
Pfizer Inc. failed to convince advisers to the US Food and Drug Administration to support a dramatic expansion in the use of its prostate cancer drug, a setback that could scuttle the company’s blockbuster ambitions for the treatment.
Snowflake Inc. gave a strong outlook for quarterly sales after launching a slew of new products over the last year.
Cigna Group’s drug benefit unit is offering a new way for health plans to cover expensive weight-loss drugs that it says will make the medicines available to more patients.
Zoom Communications Inc. reported revenue from enterprise customers that topped analysts’ estimates, suggesting stronger sales among its expanded suite of products.
Walt Disney Co. notified Florida-based employees who are losing temporary legal residency in the US that their jobs would be terminated next month after the Supreme Court ruled Monday that the Trump administration could revoke protections for 350,000 Venezuelans.
Alphabet Inc. climbed after the company said it will offer “AI mode” in search to all US users, showing its commitment to redesigning its core business to keep pace with new rivals in the artificial intelligence age.
Nvidia Corp. chief Jensen Huang blasted the “failure” of US restrictions intended to contain China’s technological ascent, calling on the White House to lower barriers to AI chip sales before American firms cede that market to up-and-coming rivals such as Huawei Technologies Co.
OpenAI will acquire the AI device startup co-founded by Apple Inc. veteran Jony Ive in a nearly $6.5 billion all-stock deal, joining forces with the legendary designer to make a push into hardware.
United Airlines Holdings Inc. Chief Executive Officer Scott Kirby told shareholders that the carrier is seeing “at least a stable revenue and booking environment” heading into the Memorial Day weekend and start of the summer travel season.
Target Corp. cut its sales forecast following a sharp pullback in spending and a hit from tariffs, boycotts and consumer confidence.
Lowe’s Cos. comparable sales beat expectations during the latest quarter as shoppers maintained home spending despite weakening consumer sentiment and economic turbulence.
TJX Cos. executives said the company’s global network of vendors and flexibility on price and merchandise will help the company manage tariff pressures.
UnitedHealth Group Inc. tumbled after the Guardian reported the insurer secretly paid nursing homes bonuses to reduce hospital transfers for ailing residents.
Boeing Co. has told customers that it’s approaching a key production target that would signal manufacturing of its all-important 737 jet is back on track following last year’s harrowing mid-air accident.

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