Treasury Yields Hold Firm as U.S. Deficit Fears Weigh on Markets
U.S. Treasury yields remained largely unchanged on Thursday as investor anxiety over the nation’s mounting fiscal deficit continued to dominate market sentiment.
As of 3:40 a.m. ET, the 30-year Treasury yield was steady at 5.09%, matching levels last seen in November 2023. The 10-year yield dipped slightly to 4.58%, down just over one basis point, while the 2-year yield slipped more than 2 basis points to 3.99%. (Note: One basis point equals 0.01%. Yields and bond prices move in opposite directions.)
This week, investors have been closely monitoring the widening U.S. budget gap, which has been thrust into the spotlight following a series of developments — most notably, Moody’s recent downgrade of the country’s credit rating from Aaa to Aa1, and President Donald Trump’s newly proposed budget plan.
Trump’s sweeping fiscal proposal, which has sparked intense debate in Congress, is projected to increase the national debt by $3 trillion to $5 trillion. Analysts warn this could worsen the deficit, stoke inflationary pressures, and further unsettle an already fragile bond market.
Moody’s cited “large annual fiscal deficits and growing interest costs” as key reasons for the downgrade — a move that has shaken confidence in Treasurys’ status as a traditionally risk-free asset.
“The market is demanding a higher risk premium for long-term government debt,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “Globally, we’re seeing a repricing of sovereign debt in response to rising uncertainty around fiscal discipline.”
Investors are also watching for Thursday’s release of weekly jobless claims and existing home sales, which could provide additional clues about the broader economic outlook.