While U.S. stocks continue to rebound and investors bask in optimistic sentiment, the U.S. Treasury market is showing a different tense picture. With the 30-year Treasury yield nearing 5% and the 10-year yield surpassing 4.5%, U.S. Treasury prices are once again under pressure, refocusing the market on fiscal and policy risks.
Yields Rise Across the Board, Bond Market "Alarm" Rings Again
The latest data shows that on Wednesday, yields on U.S. Treasuries of all maturities rose across the board:
- 2-year yields rose 4.65 basis points to 4.042%;
- 3-year yields increased by 5.88 basis points to 4.043%;
- 10-year yields increased by 6.93 basis points to 4.534%;
- 30-year yields increased by 6.57 basis points to 4.971%.
This rise in yields brings to mind a similar situation last month. At that time, the U.S. 10-year Treasury yield surpassed 4.5%, forcing Trump to delay the "reciprocal tariff" policy. When questioned by the media if policy adjustments were made due to bond market fluctuations, Trump responded, "The bond market is very tricky, and I've been observing it."
Economists Warn: Bond Market on the "Verge of Collapse"
Famed economist Peter Schiff wrote on the X platform that the 10-year U.S. Treasury yield has risen to 4.53%, and the long-term bond ETF TLT has also fallen to its lowest point since November last year. He warned that the U.S. bond market is on the verge of collapse, and the bond market "vigilantes" are back, clearly unimpressed by the "Beautiful Bill."
Comparing Two Rounds of Sell-offs: Is This Time More "Reasonable"?
Unlike last month's sudden sell-off, this round of bond market decline is more aligned with market logic to a certain extent. On one hand, expectations for a Fed rate cut have been continuously delayed, with investment banks like Goldman Sachs predicting the first rate cut might not happen until December; on the other hand, the strong rebound of risk assets like U.S. stocks has also reduced the demand for safe haven assets like U.S. Treasuries.
However, this does not mean the bond market can relax. Compared to last month’s “unexpected” sell-off due to trade tensions, this downturn, although supported by logic, still carries potential risks.
"Beautiful Bill" Intensifies Deficit Expectations, Causing Concerns
Another key factor behind the current bond market volatility is the much-discussed "Beautiful Bill" in the U.S. This comprehensive legislative package, praised by the Trump administration, plans to tackle tax cuts, immigration policies, and a series of domestic issues in one go, aiming to be signed by July 4.
According to assessments, the bill will increase the federal budget deficit by about $3.7 trillion over the next decade. Such massive fiscal spending projections will undoubtedly increase pressure on Treasury issuance, exacerbate the imbalance of supply and demand in the bond market, and further push up yields.
Bond Market Warnings Not Yet Lifted
Overall, the U.S. Treasury market is in a sensitive phase influenced by changes in interest rate expectations, expanded fiscal expenditures, and policy uncertainty. Although the current sell-off is somewhat reasonable, policy directions could still bring unforeseen shocks.
For bond market investors, the "Beautiful Bill" might not just be a fiscal issue but also a risk tester. Under the dual pressure of high interest rate volatility and fiscal deficits, the "second test" of the U.S. Treasury market may be just beginning.
