Yields on 30-year U.S. Treasuries hit their highest level since 2023, and stock futures fell on Monday, as investors’ concerns over the country’s increase in debt burden.
Increased borrowing costs and concerns about the national debt The
U.S. long-term borrowing costs rose to their highest level since late 2023, and stock futures fell on Monday. This came after Moody’s stripped the United States of its top credit rating and after advances in President Donald Trump’s major tax and budget law heightened concerns about the government’s rising debt.
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This should be a frightening page for all Americans, it follows in real time the United States’ debt commitment and deficit.
The yield on 30-year US Treasury bonds rose by 0.13 percentage points to 5.03% on Monday, which is the highest level since November 2023. The interest rate movement comes at the same time as bond prices are falling.
Stock futures for the S&P 500 and Nasdaq sank 1.3% and 1.7%, respectively, while the U.S. dollar fell 0.7% against a basket of other currencies.
Moody’s warns of rising government debt
The interest rate hike followed Moody’s downgraded the US top credit rating (AAA) on Friday evening and warned of rising government debt and a growing budget deficit.
On Sunday evening, a congressional committee also approved a tax bill from the new administration that is expected to further exacerbate the deficit.
While analysts don’t believe the downgrade will lead to a forced sale of U.S. Treasuries among major investors, it will raise concerns about the sustainability of the country’s debt.
“One more warning to an administration that is already under pressure”
– This is one more warning for a US administration that is already under scrutiny from the bond market, said Pooja Kumra of TD Securities.
Nicolas Trindade, a fund manager at Axa, called the downgrade a “stark reminder that the United States should not take for granted its ‘extreme privilege’ that has allowed the country to issue debt at relatively low costs despite a very high budget deficit.”
Political pressure and economic consequences
On Friday, five Republican lawmakers on the Budget Committee voted against the tax bill, but on Sunday it barely passed through the committee.
Trump had pressured fellow party members to vote for the bill, writing on social media: “Republicans MUST stand united behind ‘THE ONE, BIG, BEAUTIFUL LAW!’ We don’t need ‘ATTENTION-SEEKERS’ in the Republican Party. STOP TALKING, AND GET IT DONE!”
The law, which includes tax cuts of hundreds of billions of dollars without corresponding savings, is expected to increase the federal deficit, which in 2024 amounted to 6.4% of GDP – far above what economists consider sustainable in the longer term.
More bonds and inflation concerns
“The law is helping to drive up long-term interest rates,” said Subadra Rajappa, head of US fixed income strategy at Société Générale.
A larger deficit means that the government must issue more bonds. Some investors have already started selling bonds in anticipation of increased supply and potential inflationary effects from the tax cuts.
Questions about the United States’ safe haven status The
United States has long been able to operate with large budget deficits thanks to its economic strength and the dollar’s role in the global financial system. But analysts are now questioning whether US assets can still be considered “safe”, when volatile policies from Washington worry major global investors.
The administration claims the tax cuts will boost growth, increase revenues and reduce the deficit. But the Committee for a Responsible Federal Budget estimates that the law could increase the national debt by up to $5.2 trillion (€4.7 trillion) over 10 years.
Several factors are driving interest rates up
“The direct cause [of the bond fall] is Moody’s downgrade,” said Wei Li, head of multi-asset investments in China for BNP Paribas.
“But there are other, more fundamental reasons why interest rates are rising… There is still considerable uncertainty about tariffs and inflation.
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