The surge in U.S. Treasury yields triggers an asset sell-off, while stock index futures rebound during early trading on May 22, 2025.
On May 22, 2025, the yields on the U.S. 20-year and 30-year Treasury bonds exceeded 5%, raising concerns about the U.S. fiscal health and putting pressure on the stock and bond markets, as well as the dollar. The Dow Jones Industrial Average dropped more than 800 points the day before, but stock index futures showed slight stabilization in early Thursday trading. The increase in yields is linked to weak demand at the 20-year Treasury auction, the Trump administration's tax reform policies, and the expanding budget deficit, undermining market confidence in U.S. assets.
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05/22 10:19
The surge in U.S. Treasury yields triggers an asset sell-off, while stock index futures rebound during early trading on May 22, 2025.
On May 22, 2025, the yields on the U.S. 20-year and 30-year Treasury bonds exceeded 5%, raising concerns about the U.S. fiscal health and putting pressure on the stock and bond markets, as well as the dollar. The Dow Jones Industrial Average dropped more than 800 points the day before, but stock index futures showed slight stabilization in early Thursday trading. The increase in yields is linked to weak demand at the 20-year Treasury auction, the Trump administration's tax reform policies, and the expanding budget deficit, undermining market confidence in U.S. assets.
U.S. Treasury Yields Surge to Multi-Year Highs
On Sunday (May 21), the U.S. Treasury auctioned $16 billion in 20-year bonds, showing significantly weak demand, with the final winning yield reaching 5.047%, a historical high for bonds of this maturity. Subsequently, the 20-year Treasury yield further rose to 5.127%, the highest level since November 2023. The 30-year Treasury yield also climbed, surpassing 5.1%, nearing a 20-year high; the 10-year Treasury yield rose to 4.5985%.
This surge in Treasury yields reflects investors' concerns about the U.S. fiscal situation. According to data from the Congressional Budget Office (CBO), U.S. public debt has reached 100% of the Gross Domestic Product (GDP), with interest expenses alone in 2024 expected to reach $880 billion, exceeding the defense budget. The market is uneasy about the U.S. government's continuously expanding budget deficit and debt size, leading investors to demand higher risk premiums to hold long-term Treasuries.
Selling Wave Spreads to Stock and Currency Markets
The surge in Treasury yields triggered a chain reaction in the markets. On Sunday, all three major U.S. stock indices closed in the red, with the Dow Jones Industrial Average plummeting 816 points, a 1.91% drop; the S&P 500 fell 1.61% to 4,844.61 points; the tech-heavy Nasdaq index was also under pressure. Tech and growth stocks, sensitive to interest rate changes, were the hardest hit in this selling wave.
The dollar weakened as well. The dollar index fell below the psychological barrier of 100, with the dollar dropping 0.6% against the yen to 143.62 yen; it also fell against the euro. Analysts pointed out that the dollar's weakness is related to capital outflows caused by rising Treasury yields, with some funds shifting to safe-haven assets like the yen, Swiss franc, and gold.
Tax Reform Bill and Fiscal Concerns Heighten Market Anxiety
Another key factor in the market turmoil is the Trump administration's push for a massive tax reform bill. The bill passed the House Rules Committee on May 21 and is expected to proceed to a vote. According to non-partisan analysis, the bill could increase federal debt by $3 trillion to $5 trillion in the coming years. There are still divisions within the Republican Party regarding the extent of spending cuts in the bill, with conservative lawmakers believing the current version fails to effectively control the deficit.
Former U.S. Treasury Secretary Steven Mnuchin stated at the Qatar Economic Forum that instead of worrying about the trade deficit, more attention should be paid to the expanding budget deficit. He urged the government to prioritize spending cuts to restore fiscal discipline.
Bond Market Pressure Spreads Globally
The rise in U.S. Treasury yields has also led to simultaneous increases in long-term bond yields in other major economies. Japan's 30-year bond yield surged to a new high after a poorly performing auction, and the UK's long-term bond yields also rose. Market analysts pointed out that this reflects a global reassessment of sovereign debt risk by investors.
Additionally, according to data from the Chicago Mercantile Exchange (CME), traders are heavily betting that the 10-year U.S. Treasury yield will rise to 5% in the coming weeks, with related options trading amounting to $11 million. A survey by JPMorgan also shows that bearish positions on U.S. Treasuries have reached their highest level since February.
Stock Futures Rebound in Early Trading
Despite the sharp market decline in the previous trading day, stock futures rebounded in early trading on Monday (May 22). According to USA Today, as of 5:30 AM Eastern Time, Dow futures were down slightly by 0.12%, S&P 500 futures were up 0.08%, and Nasdaq futures rose 0.16%. Short-term market sentiment has slightly stabilized, but overall remains on high alert.
Market Analysts' Responses
Several market experts pointed out that the bond market's reaction has become a direct statement on government fiscal policy. George Catrambone, Head of Fixed Income at DWS Americas, stated, "The bond market has made its stance clear on the budget bill terms." Priya Misra, a fund manager at JPMorgan Asset Management, noted, "This is not just a bond market issue; these concerns are now starting to affect risk appetite, with the stock and credit markets also closely watching."
Tim Magnusson, Chief Investment Officer at Garda Capital Partners, believes that the market will ultimately impose discipline in some way. He noted that unless the government addresses social welfare reform, bond market pressure will persist.
