On Tuesday, U.S. stock markets traded calmly despite negative developments in the Far East. That day, Japan’s bond yields maturing at 30 and 40 years soared to record highs.
On Wednesday, the stock market sentiment changed course. U.S. Treasury bond auctions failed to attract buyers. As a result, the 30-year treasury bond yield closed at 5.098% by Wednesday evening. This is a level not seen since 2023. It also matched yields not seen in two decades.
Stocks are now pricing in the downside risks of the U.S. deficit getting worse. The public widely expects the new “big beautiful bill” will give high-net-worth individuals a sizable tax break. In contrast, the everyday working American will face higher costs for goods. Walmart (WMT) already warned investors and its customers that tariffs will cause prices to rise meaningfully.
Watch the Republican Spending Bill
The high bond yields are a warning of the risks coming from the Republican spending bill. Absent buyers for treasury bonds would cause yields to rise further. Banks set mortgage rates that consider those yields. Watch out for technology stocks to give back much of their gains in the last month. Apple (AAPL), Tesla (TSLA), and Nvidia (NVDA) are at greatest risk. Drug stocks like Lilly (LLY) and Pfizer (PFE) will pull back in sympathy with the weak tech sector.
